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Financial Transaction Tax Resurfaces as Free College Pay-for

Legislation

A legislative proposal has reemerged in Congress seeking to use proceeds from a tax that would hit retirement savings to pay for making public colleges and universities tuition-free. 

Sen. Bernie Sanders (I-VT), chairman of the Senate Budget Committee, and Rep. Pramila Jayapal (D-WA), on April 21 introduced in their respective chambers the “College for All Act” that would be paid for by the “Tax on Wall Street Speculation Act.”

Sanders reintroduced the Tax on Wall Street Speculation Act as separate legislation in the Senate, while Rep. Barbara Lee (D-CA) reintroduced the companion bill in the House of Representatives. The actual legislative language is not yet available. 

First proposed by Sanders in May 2019 as a way to limit speculative trading and later touted by him in June 2019 as a way to help pay for tuition-free college, the Tax on Wall Street Speculation Act legislation would impose a financial transaction tax of 0.5% on stock trades, a 0.1% fee on bonds and a 0.005% fee on derivatives. The sponsors suggest that the tax would raise $220 billion in the first year and $2.4 trillion over the next decade. 

In noting that the College for All Act is modeled directly after the Biden-Sanders Unity Task Force proposal, the bill, among other things, would eliminate tuition and fees at public four-year colleges and universities for those making up to $125,000 a year and make community college tuition and fees free for all. The bill also comes as congressional Democrats step up pressure on President Biden to use his executive authority to cancel student loan debt. 

“Thirteen years ago, the middle class bailed out Wall Street during their time of need even as the middle class was struggling. Now, it is Wall Street’s turn to rebuild the struggling middle class by paying a modest financial transactions tax to make sure that everyone in America who wants to get a higher education can do so without going into debt,” Sanders and Jayapal argue in a summary of the legislation

In addition to making public college tuition-free, the lawmakers claim the financial transaction tax will help “reduce speculation and high-frequency trading that is destabilizing financial markets.”

“Because the increased trading on Wall Street over the past several decades has not benefited working Americans, the reduced trading that results from a financial transaction tax would not harm the savings of the middle-class who invest through pensions or mutual funds,” the lawmakers contend, echoing language they used the last time the legislation was introduced. In fact, they claim that “these people would likely save money because they would be charged fewer fees for trades.”
Sanders and Jayapal assert that for the “rare household of modest means that trades directly or through a broker,” the legislation would provide an income tax credit to offset the entire financial transaction tax for individuals with incomes less than $50,000 and married couples with incomes less than $75,000. 

While the legislation’s sponsors claim it is targeted at speculative and high-frequency trading and that it wouldn’t affect the middle class, the Tax on Wall Street Speculation Act’s financial transactions tax on the sale of stocks and bonds still appears to include those held within the trillions of dollars of retirement savings invested in mutual funds and collective investment trusts by pensions and 401(k)s.