1% Transaction Tax
September 8, 2010
Q: Is "Obama’s finance team" recommending a 1 percent tax on all bank transactions, as a chain e-mail claims?
A:
No. This idea was first floated in 2004 by one House member, who says it would replace the federal income tax and eliminate the national debt. So far it has gone nowhere.
FULL ANSWER
This is an idea originally floated in 2004 by a single member of Congress, Democratic Rep. Chaka Fattah of Pennsylvania. So far it has attracted little support and gone nowhere. The
White House has not endorsed it.
Fattah has a web page devoted to explaining the original idea from 2004, which he called the "Transform America Transaction Fee." In its latest incarnation, he calls it the "Debt Free America Act." It would repeal the federal income tax (a feature not mentioned in the chain e-mail message) and supposedly still generate enough revenue to eliminate the national debt. It also contains a tax credit that would, at least in theory, offset the tax for families making less than $250,000 a year.
Fattah explained his proposal in a press release dated Feb. 23. His plan also has been summarized in a newspaper column by Democratic commentator Lanny Davis.
Fattah’s original bill from 2004 (H.R. 3759) would merely have required the U.S. Treasury to conduct a one-year feasibility study of a 1 percent transaction fee. Back then, he touted the possibility that such a system would bring in so much money it would allow for greatly increased federal spending, saying the "excess funds" would "provide universal health care, support an equitable public school finance system, and fund economic development in urban and rural areas," in addition to extinguishing the national debt and eliminating all other federal taxes. That bill died without becoming law, or even attracting a single co-sponsor.
Fattah tried again in 2005, with H.R. 1601, and again in 2007 with H.R. 2130 (which had a single cosponsor, Democratic Rep. Brian Baird of Washington). But both bills died without any action being taken. Last year he introduced a fourth bill to require a study, H.R. 1703, which attracted no cosponsors. That bill is still languishing in committee.
With no study in sight, Fattah this year introduced a bill that would establish the fee and repeal the federal income tax. The latest bill is H.R. 4646, introduced on Feb. 23, 2010. The congressman is now saying less about increased spending, and more about eliminating the debt: "If Congress fails to act, inflationary pressures triggered by staggering debt will create economic conditions unlike anything ever experienced in the history of this country, including the Great Depression."
Fattah has also added a tax credit designed to eliminate the impact of the measure on those making less than $250,000 a year. But it’s basically the same idea — replacing current federal taxes with a penny-on-the-dollar tax on transactions. The latest bill was referred routinely to the several committees that have jurisdiction over its various aspects. As of Sept. 5, 2010, none of the committees had scheduled any action on it.
We spoke to Rep. Fattah about it, and he said he’s hopeful the president’s National Commission on Fiscal Responsibility and Reform will see merit in his proposal. But so far, he said, "No one at the White House has ever commented on this in any fashion."
As usual, we’re only describing the bill, not saying it’s a good idea or a bad idea. But it’s just not true that "Obama’s finance team" supports it.
– Brooks Jackson
Update, Sept. 29: Some versions of this message incorrectly identify Democratic Rep. Peter DeFazio of Oregon and Democratic Sen. Tom Harkin of Iowa as sponsors of the legislation. Rep. DeFazio, whose office has received many inquiries about the message, told us through a spokesman that he not only isn’t co-sponsoring the bill, he doesn’t support it.
Code:
Rep. DeFazio, Sept. 29: I do not support Rep. Fattah’s H.R. 4646 because it wrongly targets all financial transactions, rather than just focusing on the Wall Street speculators that got us into this economic mess. An average American making normal day-to-day transfers of money should not be taxed on those transactions .
DeFazio sponsored a different and much narrower transaction tax proposal in 2009, which he called the ‘‘Let Wall Street Pay for Wall Street’s Bailout Act of 2009’’ That was H.R. 1068. DeFazio’s tax would have been only 0.25 percent, would have applied only to securities and commodities transactions, and would have fallen to zero once it had recouped the net cost of the Troubled Asset Relief Program. It had 13 co-sponsors, but the only similarities to Fattah’s proposal is that it involved a transaction tax, and also did not move out of committee.
Sen. Harkin’s version of the 0.25 percent transaction tax on securities and commodities was S. 2927, the "Wall Street Fair Share Act." It attracted three co-sponsors and also did not move out of committee.