Okay, let's start with the FTT.
A lot of have commented about his speculation tax, and plain and simple, it simply doesn't add up. And it will destroy the middle class's retirement.
Before I begin, and before people start citing about how "other countries have FTTs" - this isn't about FTTs. The US has an FTT too - it is how we fund the SEC. The issue at hand is how bad Sanders' plan is.
To begin with, he wants this tax to kill speculation by taxing speculation. However, if you tax speculation, and it kills speculation... you suddenly have no tax revenue once speculation dies. Now you suddenly have a funding shortfall elsewhere.
But that is in the abstract. If we want to compare his numbers to other nations, Sweden is often cited, where it killed their stock market and they only collected 3% of their revenue. The UK is also often cited, except that in the UK, most trades are now done on areas with exemptions by using swaps. Collected revenue was less than 10% of projected. So right off the bat, the Sanders' study claiming it could generate $300 billion is raising skeptical eyes.
But his tax isn't just a normal tax. His specific details are troubling. Now, what is Sanders' specific FTT?
Sanders' plan is based on a 2012 UMass-Amherst study that can be found here:
Here's a 2014 bill posted in the House with the same rates that Sanders is proposing: https://www.congress.gov/bill/114th-congress/house-bill/1464/text
Essentially, there will be a 50 basis points (0.5%) tax on the total value of every transaction for equities (stocks), 15 basis points (0.15%) for bonds, and 5 basis points (0.05%) tax on derivatives. Notably, in that bill, there is only one exemption:
“(1) IN GENERAL.—Subsection (a) shall not apply to a taxpayer for the taxable year if the modified adjusted gross income of the taxpayer for the taxable year exceeds $50,000 ($75,000 in the case of a joint return and one-half of such amount in the case of a married individual filing a separate return).
Aside from the fact that $50,000 income ($75,000 a household) isn't that high, and affects a significant chunk of the middle class - especially the ones with IRA's and 401(k)'s - that is only for individual investor trades.
So sure, that might protect you from your contributions (if you meet the qualifications) and your withdrawals (if your income is less than $50k), however, those IRA's and 401(k)'s are managed by brokerages and fund managers which are explicitly stated as not being exempt:
“(1) IN GENERAL.—The tax imposed by this section shall be paid by—
“(A) in the case of a transaction which occurs or is cleared on a facility located in the United States, such facility, and
“(B) in the case of a purchase not described in subparagraph (A) which is executed by a broker (as defined in section 6045(c)(1)), the broker.
Now, why is this a big deal? Because most retirements/pension funds aren't managed by individual investors. They are managed by fund managers/brokerages which invest and reinvest your money on the market.
An FTT of the magnitude he is proposing, 0.5% on the value of every equity transaction, will kill liquidity in the marketplace, which most economists believe will lead to volatility. This seems counter productive to stabilizing Wall Street.
Not to mention, those with the capital/resources can simply trade overseas. Your average Joe Trader cannot.
Finally, let's talk about the retirement funds specifically. Your 401(k) or IRA invests in funds. These funds don't just sit still - for instance, a plan for retiring in 2050 might start off with stocks and riskier higher yield securities. Each year, the fund managers rebalance your funds multiple times to buy/sell stocks and securities to achieve optimal returns.
Well, the average fund in the stock market has a turnover closer to 100% than 50%. That means, on average, your fund will see nearly all of its values bought/sold each year.
Remember when I said his FTT is on the value of any transaction?
Let's say you invest $1000 into a fund with only equities in your 401(k). The 0.5% tax on equities will take 0.5%, or $5 out, for the purchase. Lets say your fund rebalances the portfolio 100% that year, selling the entire value of your remaining balance (with a 0.5% cut again), then using that to buy a whole new set of securities (another 0.5%....)
Losing 0.5%-1% a year may not seem bad. I mean, that's only $5-10 of your initial $1000 right? Except that it is annual which means a lowering of your rate of return and is compounded:
A $1000 investment, at 8% rate of return over 40 years, nets you $21,725.
A 7.5% rate nets you $18,044. You're out 17% of your potential retirement money.
A 7.0% rate nets you $14,974. You're out 31% of your potential retirement money.
A 6.0% rate nets you $10,286. You've lost over 50% of your potential retirement money.
That's a huge huge huge deal.
Now you might ask - that's assuming a fund is at 100% turnover and is 100% equities. What about other funds?
Well, let's assume a fund is 90% equities, 10% bonds, not unlike many found for pensions. With an 85% turnover, and a transaction on both the sale of funds and purchase (effectively getting taxed twice), we get this table: at 40 years of a 6% rate of return, you will lose out on 25% of your retirement potential.
The details on the numbers matter, and Sander's proposal neither adds up, nor is it free of impact on the average American by ANY means.
You want to know the kicker behind all this that people are eating up? That UMass Amherst study up there that Sanders quotes on his website and pulls his estimates from? It says this on the first page:
To begin with though, again, we emphasize that our conclusions are not based on anything close to the type of solid foundation in research and evidence that one would normally expect in considering such an important question.
