Perlmutter, DeFazio and Sen. Harkin Introduce Bill Raising Money to Pay Down the National Debt

Today, U.S. Reps. Ed Perlmutter (D-CO), Peter DeFazio (D-OR), Chairman of the House Subcommittee on Highways and Transit and Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee introduced legislation to raise approximately $150 billion per year to pay down the national debt, create jobs, and restore Main Street America by assessing a small transaction tax on securities.

“First and foremost, this bill is about raising money to pay down our national debt,” said Perlmutter. “Last year, we gave $700 billion to Wall Street because we had to in order to get money and credit moving again to Main Street. Unfortunately, Main Street is still hurting and small businesses and individuals need help now.”

“Like the Exxon Valdez oil spill, this financial downturn we inherited from the Bush Administration, continues to run deeper and have further impacts than it appeared on the surface. With unemployment hovering around 10.2% and a record deficit of $1.4 trillion, it’s time for the recovering Wall Street we bailed out to help Main Street America. ”

* Click here to watch video of press conference.

The bill exempts retirement and pension plans as well as transactions less than $100,000 per year. Under the bill, a small securities transaction tax on Wall Street trades will be assessed which will raise money to be pay down the national debt and invest in the current needs of Main Street America. A securities transaction tax is applied to:

*Stock transactions (tax rate will be 1/4 of 1 percent --0.25%),

*Futures contracts to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price (tax rate will be 0.02%), *Swaps between two firms on certain benefits of one party's financial instrument for those of the other party's financial instrument (tax rate will be 0.02%),

*Credit default swaps where a contract is swapped through a series of payments in exchange for a payoff if a credit instrument (typically a bond or loan) goes into default (fails to pay) (tax rate will be 0.02%),

*And options, which are contracts between a buyer and a seller that gives the buyer the right, but not the obligation, to buy or to sell a particular asset on or before the option's expiration time, at an agreed price (at the rate of the underlying asset).

“The tax is aimed at curbing the casino-like gambling of the largest Wall Street financial institutions engaged in excessive speculation, high-volume short-term trading. This will protect the Middle Class and the majority of Americans by stabilizing the markets for the longer term retirement investments and legitimate hedges because prices will no longer be manipulated by speculative trading,” said Perlmutter.

Below are more facts about the legislation:

The middle-class is exempt. To ensure the tax is appropriately targeted to speculators and has no impact on the average investor and pension funds, the tax will be refunded for:

1) tax-favored retirement accounts,
2) education savings accounts,
3) health savings accounts,
4) mutual funds and,
5) the first $100,000 of transactions annually that are not already exempted.

For example, a 60 year old couple with $500,000 in retirement funds, another $100,000 in Health Savings Accounts, $400,000 in mutual funds that cashed out any of it, would not pay any transaction taxes. If they also hold $200,000 in IBM stock, they still don’t pay any transaction taxes. If they sold half of their IBM stock in a year, they still don’t owe any taxes. If they sold all $200,000 of their IBM stock in a year, they would owe $250. This couple is generally held harmless by the tax, just like 99% of taxpayers who don’t speculate in financial markets.

Deficit Reduction and Job Creation:
The revenues from this bill are targeted to the two critical needs of today, job creation and deficit reduction:

1) Half the revenue generated by this transaction tax (approximately $75 billion) will be used to directly reduce the deficit. The federal deficit exploded in 2009 in large part because of the collapsed economy. Of the $950 billion increase in the deficit from 2008 to 2009, almost all of it is attributable to either lost tax receipts due to the recession or the federal response (for example TARP, ARRA, and unemployment benefits).

2) The second half of the revenue generated by this transaction tax (approximately $75 billion) will be deposited in a Job Creation Reserve to fund the creation of good paying jobs and put Americans back to work rebuilding our nation. This will boost funding for the Surface Transportation Authorization Act of 2009 and the remaining funds (approximately $55 billion) are set aside for Congress to allocate in future legislation. We cannot wait for the next bubble to pull us out of the recession. We must invest in our future, our infrastructure, and our middle class. For every $1 billion the federal government invests in infrastructure –roads, bridges, water and sewer - 43,000 American jobs are created that cannot be exported.

This is not a new tax. The had a transfer tax from 1914 to 1966. The Revenue Act of 1914 (Act of Oct. 22, 1914 (ch. 331, 38 Stat. 745)) levied a 0.2 percent tax on all sales or transfers of stock. In 1932, Congress more than doubled the tax (0.4%) to help overcome the budgetary challenges during the Great Depression and WWII.