Dinkins's Team Says No to Stock Tax
New York's Mayor David Dinkins last month formed a committee to advise him on New York City's competitiveness in financial services. Friday, the committee produced the following statement on the stock transfer tax, one of the proposals being considered by the president and Congress in this week's budget negotiations:</br></br>Recent discussions of the federal budget deficit have raised the possibility of a securities transfer excise tax of between 15 and 50 basis points, or 0.15% and 0.5%. STET would tax all sales of marketable securities (including stocks, bonds and commercial paper) other than Treasuries. Reaction to this proposal has been overwhelmingly negative. Several studies demonstrate the adverse impact STET would have on the U.S. economy and, in particular, on New York. We agree with the emerging consensus that STET would seriously, and perhaps irreversibly, damage the competitive viability of the U.S. securities markets and its financial institutions. STET would also have the short-term effect of further depressing the U.S. stock market, which has already fallen by 10% since mid-July.</br></br>To help foster public understanding as to why STET would cause severe, self-inflicted injury to our financial markets, impairing their global competitiveness, we address the most important issues raised in regard to STET.</br></br>How can a tax of of less than half a percent erode the competitive position of the U.S. securities industry?</br></br>The tax only appears to be insignificant. Total transaction costs typically paid by institutions such as pension funds and insurance companies (which are responsible for 70% of trading) are only four or five basis points. Thus, at 15 basis points, STET would triple transaction costs for institutions.