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Garden State’s Financial Transaction Tax Remains on the Table

Legislation

Democratic Governor Phil Murphy and the Democratic-controlled legislature are set to approve a $32 billion budget for fiscal year 2021 before the Sept. 30 deadline that will increase taxes on high-income individuals and reinstate a 2.5% corporate surtax to help address the state’s widening budget gap. The proposal also provides a child tax rebate of $500. 

But while the proposal to impose a tax on high-quantity processors of financial transactions conducted in New Jersey-based data centers was dropped from the current budget talks, Murphy said that it’s still a possibility in the future. At a Sept. 17 news conference to unveil the budget agreement, he was reported as saying that, “We all think that’s a good idea, and that is something that we continue to machine.”

The proposed financial transaction tax was introduced July 9 by Assemblyman John McKeon (D-Essex). The bill (A4402) would impose a tax on high-quantity processors of financial transactions at $0.0025 per transaction. High-quantity processors would be defined as persons or entities that process 10,000 or more financial transactions through electronic infrastructure located in New Jersey during the year. 

McKeon notes that there are reportedly billions of financial transactions processed daily, many of which are processed in New Jersey. But even though the tax would be administered on the processor, it could be passed along to the purchaser or seller, therefore raising billions of dollars in revenue annually for New Jersey, according to the bill summary. 

For purposes of the tax, a financial transaction would be defined as transactions involving the purchase or sale of a financial security, which would include, but is not limited to, a futures contract, options contract, futures option contract, swap contract, credit default swap contract, derivative or share of stock in an entity. 

Notably, the legislation as drafted does not currently make any exception for retirement plan investments, including participants in 401(k) plans and other plans that invest in the markets.

Interestingly, and as first reported by The Wall Street Journal, the New York Stock Exchange has threatened to remove its servers from New Jersey should the state proceed to implementing such a tax. In fact, the NYSE reportedly is going to test run their smallest of five exchanges out of a backup site in Chicago from Sept. 28 to Oct. 2. Nasdaq executives have indicated that they will also temporarily move some operations to Chicago.

Whether this prompted Murphy to drop the proposal for now is unknown, but he has previously called for about $1 billion in tax increases and $4 billion in borrowing to offset the state’s projected tax losses due to the coronavirus pandemic.

Yet, despite studies showing that an FTT would be detrimental to retirement savers and harm the economy, such proposals keep showing up, whether they are from Democratic presidential candidate Joe Biden or other state legislatures.