Garden State Looks to Financial Transaction Tax to Fix Budget Woes

Legislation has been introduced in the New Jersey state legislature that would impose a tax on financial transactions—including those in your 401(k)—to fix the state’s widening budget gap. 

 

Unlike other financial transaction tax (FTT) proposals, however, this bill takes a slightly different approach. 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.

 

Adding a strange twist to the narrative, the proposal was originally put forward by a Democratic congressional candidate who died a day after being defeated in his primary election and the day before the legislation was introduced. As first reported by Politico, David Applefield, during his unsuccessful campaign for the Democratic nomination in New Jersey’s 4th District, proposed the “micro-cent” tax on every Wall Street trade processed on a server located in New Jersey.

 

Assemblyman McKeon apparently read about the idea in a June 14 op-ed that Applefield and Andrew Ellis, who previously worked as a Republican budget staffer in the U.S. Senate, wrote in The Star-Ledger and decided to take up the idea as a way to help the state address its budget shortfall brought on by COVID-19. 

 

“Over 10 billion shares pass through the New York Stock Exchange and NASDAQ daily,” Applefield and Ellis wrote in their op-ed. “What most New Jerseyans do not know is that these financial transactions happen to be processed right here in the Garden State in three major high-tech data centers—and the staggering volume of financial transactions takes place daily whether the Dow is soaring or plummeting.”

 

It’s not clear whether McKeon’s bill will get any traction in the New Jersey legislature, but the idea of taxing financial transactions persists at the state and federal levels.

 

Presumptive Democratic presidential nominee Joe Biden has called for an FTT, as had most of the leading Democratic candidates when they were still in the race, including Sen. Bernie Sanders (I-VT), Mike Bloomberg, Sen. Elizabeth Warren (D-MA) and Pete Buttigieg. 

 

And these proposals continue to surface despite several studies, including those by SIFMA, the U.S. Chamber of Commerce, Vanguard and Modern Markets Initiative, confirming that an FTT would be detrimental to retirement savers and harm the economy. The American Retirement Association has also decried proposed FTTs, arguing, among other things, that such a tax is “an attack on American workers who are investing for their future in their 401(k).”