Sen. Pat Roberts, R-Kan., and Rep. Tom Price, R-Ga., have introduced legislation in the Senate and the House to block foreign governments from collecting taxes on securities transactions.
The European Union is moving closer to agreeing to impose a financial transaction tax that would apply to 11 member states and the tax could affect U.S. investors as well (see Don’t Have a Fit, or a FTT). France and Italy have already levied taxes on financial transactions.
The lawmakers indicated the legislation would protect Americans from additional costs to investors and businesses and avoid problems that the taxes could cause in the markets.
“In Europe, we have seen the instability these financial transaction taxes have on markets,” Roberts said in a statement. “A foreign tax is the last thing the U.S. economy needs. We have too many of our own taxes to have to then collect them for the French.”
Roberts’s bill would prohibit the Treasury Secretary from assisting any foreign government with respect to the collection of a tax on securities transactions occurring on a U.S. exchange. It also protects securities transactions in the U.S. from enforcement of any excise taxes imposed by the government of France.
His office contended that countries that have imposed a financial transaction tax have found that such a tax impedes the efficiency of markets, impairs depth and liquidity, raises costs to issuers, investors, and pensioners, and distort capital flows by discriminating against asset classes. He argued that a financial transaction tax by one country that does not include all major financial centers would increase market dislocation and decrease liquidity, which would only serve to shift trading volume to venues that do not impose such a tax.
Proponents of a financial transaction tax argue that it helps discourage financial speculation by large banks as well as high-volume computerized trading programs that distort the markets, and provides a counterbalance to the favored tax treatment of capital gains earnings at the expense of ordinary income.
Roberts contended, however, that a vaguely drafted financial transaction tax, such as those being implemented in France and Italy, and under consideration by the EU, would negatively impact the agriculture sector. Agriculture producers and many other participants in the food production chain hedge all manner of prices that relate to their business, his office noted. Corn growers use hedging and options to lock in prices, farm coops also actively hedge prices. Fuel prices are also locked in up and down the production chain. Because agriculture is global in scope, these financial transactions are increasingly based on the price, trade or other activity in foreign markets.
“This tax could be especially harmful to farmers and ranchers,” said Roberts. “It is not uncommon for a Kansas farm coop to use a derivative transaction that is based on a foreign financial instrument; they may hedge grain prices based on European or South American grain prices.”
A tax on the trades based on a European transaction would filter through to an American taxpayer, even though that taxpayer has no direct connection to the foreign transaction, he noted. Foreign governments may also try to force the bank or broker who facilitated a transaction to collect and remit the tax. While the rate of the tax may be small, because of the volume of these trades, the costs can add up. As with other transactional costs, these will be passed on to the end user/customer; a real tax cost passed on to Americans.
Rep. Price, a Georgia Republican, introduced companion legislation in the House last week, the Protect American Investments Act of 2013, H.R. 2546, prohibiting a U.S.-based company from paying a financial transaction tax imposed by any foreign government. Price introduced similar legislation in the 112th Congress as H.R. 6616.
"Americans should not be forced to pay taxes imposed by foreign nations. Financial transaction taxes deter entrepreneurism, hurt investors and they will hinder America's global competitiveness," Price said in a statement. "I urge my colleagues on both sides of the aisle to stand with the American people and against any efforts that would deter economic growth and vitality."
Price is a member of the House Committee on Ways and Means, which has jurisdiction over this issue in the House. He serves as vice chairman of the House Committee on the Budget and is also a member of the House Committee on Education and the Workforce.
Senator Roberts is a senior member of the Senate Finance Committee which has jurisdiction on taxes and trade in the Senate. He is also a member of the Senate Committee on Agriculture Nutrition and Forestry, which has jurisdiction on the Commodities Futures Trading Commission.
The Financial Services Roundtable, an industry lobbying group, welcomed the legislation. “This tax violates international trade treaties and would essentially impose a foreign tax within American borders,” the FSR said in a statement last Friday. “We are pleased Senator Roberts and Congressman Price are leading the way in stopping this unfair, inappropriate tax. Americans and their leaders in Congress should determine what taxes should be imposed within our own borders to fund our own government. Allowing foreign governments to impose taxes within our borders would set a dangerous precedent and this legislation would stop this from happening. We commend them for their leadership and acting quickly to resolve this issue.”
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