Letter in Regards to the Stock Transfer Tax

Dear Colleague:

There are many myths that surround the Stock Transfer Tax (STT). The fears usually cited in efforts to prevent reinstatement of the tax are unjustified. Economists from both academia and the private sector have urged New York to collect the Stock Transfer Tax. The consequences of not collecting the tax pale in comparison to the economic benefits of doing so. The economic advantages of the Stock Transfer Tax are as follows:

  • There have been many budget crises in the history of NYC/NYS. STT addresses the need for budget stabilization to avoid repeating this up and down cycle
  • The STT of course is designed to increase transaction costs. However, the increase in transaction costs would still leave transaction costs well within the range of historical transaction costs that never caused any harm to the industry. As a sales tax, STT is not paid by the brokerage firms or the stock exchange. They simply remit the tax to government. The cost of the tax is borne by the buyers and sellers of securities. Like any business, the only way a sales tax adversely affects the business is if the tax is so high that customers stop patronizing the business, that is stop buying what the business is selling. Since the tax does not raise transaction costs above historical levels, any such fear is wholly unfounded.
  • Employment in the securities industries is far more responsive to trends in the securities markets than to transaction costs. The adverse effect of STT on employment in the securities industry would likely be small but far offset by the gains to employment by not having substantial budget cuts. Furthermore, during the economic crisis precipitated by the coronavirus, the revenue from STT should be used to stimulate the economy. No other revenue source is substantial enough to do so. Such stimulus would benefit Wall Street as well as the rest of New York State.
  • The NYSE has substantial advantages to traders over other smaller exchanges because no one location can come anywhere close to matching the volume traded in NY. Costs on the NYSE are lower than over-the-counter markets and alternative platforms, some of which have struggled to survive financially. New Jersey has offered financial incentives to lure financial firms out of NYS to no avail. These firms continue to pay real estate prices that are at least 20% higher (if not more) than in New Jersey because of the advantages of being in NYC. In comparison, STT would not be a significant component of cost for the industry. In short, the costs of moving so far exceed the cost imposed by the STT as to make moving economically foolhardy. It is significant as well that, as shown in the New Geography of Jobs (Moretti 2013), employment congregates in NYC precisely for the reason that firms have access to the other movers and shakers in the industry. That is the real reason the firms are in NYC, just as tech firms are in Seattle for example.
  • The computer centers which implement trades ordered by firms in the City of New York already are located in New Jersey. The STT is irrelevant to the location of these computers.
  • A transaction does not have to take place in New York to be taxable here. The United States Supreme Court has so held because it had to adapt the law to internet sales.
  • New York City is not the only place in the world where investors can buy and sell securities. They are free to trade in exchanges located in Britain, Singapore, Hong Kong, Germany, France, Switzerland, Taiwan, etc. However, only Germany does not currently have a financial transactions tax, but it is poised to implement one (and had one in the past).
  • STT should be embraced to cover other investment vehicles such as derivatives. This would avoid market distortion that could arise from creating an incentive to move from equities to other investment vehicles.
  • STT addresses a problem Gov Cuomo has persistently complained about: that NY exports 20% of its federal tax revenue to other states and that other states charge NY excises taxes to bring their products, such as petroleum, to NY. The STT would mostly be paid by people who do not live in NY or even in the United States. The imbalance would be corrected.
  • The tax appropriately penalizes high frequency traders such a day traders. Attempting to use computer technology to profit off small movements in stock prices is gambling; it is not an investment vehicle, which is the purchase of buying stock.
  • There is no threat to pension plans or 401k plans. They are not the high frequency traders who would be most affected by the tax. Moreover, the STT is tiny in comparison to the brokerage fees, asset management fees, and financial advisor fees paid by those investors. Those fees will continue to be paid by ordinary citizens and continue to make these programs extremely lucrative for the financial industry.
  • The vast majority of stocks are owned by the wealthiest Americans. Yet only the poor and the middle class are being asked to sacrifice in our effort to address the current financial crisis.

Wall Street leaders like Robert Rubin support the Stock Transfer Tax. Saying it should be implemented at the Federal level, which is politically unrealistic under current conditions, is not a justification for not reinstating it in New York, as we have shown.

In conclusion, we quote from a recent (June 22, 2019) editorial in Bloomberg News: “Hong Kong, rated the world’s freest economy by the Heritage Foundation, has had a 0.1% tax on financial transactions for years. The levy has had no discernible negative effect on its economy, though it might be responsible for a relative lack of high-frequency trading. Many other countries have financial transaction taxes, including the UK, Switzerland and Taiwan.”

It is time for New York State to modernize itself and cast aside old outdated arguments. My office has copies of all the research supporting the aforementioned arguments. Please let my office know if you want this information.

Thank you for your consideration.