May 22nd 2012
By Ken Berry
The liquor and tobacco industries are frequent targets of "sin taxes" aimed at drumming up revenue from sources that cater to certain vices. But the latest call for a sin tax is directed at a group that's decidedly more button-down than bootleggers and barkeeps: Wall Street brokers.
What's more, the rallying cry is being sparked by a coalition of nurses' unions, whose members normally have a greater objection to the companies peddling cigarettes and booze than those touting stock tips.
More than 3,000 nurses and activists assembled at Daley Plaza in Chicago on May 18 to protest the sins of Wall Street. The gathering was one of several events staged before this week's NATO summit. The organizers of the rally – National Nurses United (NNU), the largest nurses' union in the country – are calling for a tax of 50 cents on every $100 in financial transactions handled by brokers.
"I've been asked many, many times . . . 'What are you doing here as nurses?' . . . 'What do you have to do with the economy?'" said Karen Higgins, a registered nurse (RN) and copresident of NNU, to the crowd. "We're watching this every day. We're watching patients suffer," she said, adding that nurses are seeing people without insurance or others who can't afford copayments, as well as a spike in the number of children with adult diseases due to eating poorly because their parents can't afford healthy food. "This is serious, and in some cases it's actually deadly," concluded Higgins.
Many of her colleagues echoed those sentiments. "I've been a nurse for thirty-eight years, and I've never seen our communities in such disarray and in such suffering as in the last couple of years," said Deborah Burger, an RN and Higgins' copresident at NNU. "They got us into this mess and they have the money to bail us out."
Currently, the United States doesn't tax trades of stocks, bonds, dividends, and other financial transactions, although it did have a transactional tax between 1914 and 1966. At least a dozen other countries around the world impose such a tax.
Legislation recently introduced in Congress by Senator Tom Harkin (D-Iowa) and Representative Peter DeFazio (D-Oregon) would levy a tax of 3 cents on every $100 on most nonconsumer financial trades, including transactions involving stocks, bonds, and other debts. According to DeFazio's office, the measure would raise more than $43 billion a year, based on analysis from the Joint Committee on Taxation.
If Congress ever decides to tax financial transactions, this would be an optimal time to do it. Under current law, the maximum tax rate on long-term capital gains is only 15 percent (0 percent for certain low-income investors), while the top tax rate on ordinary income, like short-term gains, is 35 percent. Absent any extension or modification of these tax breaks, the maximum tax rate on long-term gains will increase to 20 percent (10 percent for low-income investors), beginning in 2013. At the same time, the top rate will rise to 39.6 percent.
Assuming these rates remain in place, we could experience a major sell-off of securities before 2013. A transactional tax, even if it's only pennies on the dollar, could add up to a significant amount for your high net-worth clients. Keep an eye on developments in this area so you can help your clients react accordingly.
- Obama Signs Wall Street Reform & Consumer Protection Act
- Obama to Wall Street: Return to Normalcy Cannot Lead to Complacency