Transaction Taxes Hurt Market Efficiency, ICI Says
March 18, 2013
PALM DESERT, Calif. -- The general counsel for the advocacy group that represents the investment fund industry said Monday that financial transaction taxes would hurt ‘market efficiency’ and returns on stocks, bonds and other securities.
“Whatever proponents may say, it is crystal clear that financial transaction taxes harm investors and retirement savers,’’ said Karrie McMillan, general counsel of the Investment Company Institute, which represents managers of mutual funds and exchange-traded funds.
“They increase taxes, thereby reducing nvestment returns,’’ she said in an opening address at the ICI Mutual Funds and Investment Management Conference here. “They reduce market efficiency, again reducing investment returns. And they slow economic growth which … also reduces investment returns.”
Taxes proposed in Europe and legislation introduced in the United States “can be crafted to hit” purchases and sales of stocks, bonds, derivatives and more specialized securities, such as repurchase agreements and securities loans, she said.
In Europe, 11 of the 27 European Union countries have received permission from the European Parliament to establish transactin taxes taxes. The countries moving toward a tax include three of the biggest economies: France, Germany and Italy.
In the United States, Senator Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.) have reintroduced bills proposing to impose forms of transactions taxes. DeFazio terms his a “Wall Street Speculator Tax.”
A recent study conducted jointly by the Bank of Canada and Rutgers University into the impact of a transaction tax administered by the State of New York until 1981 found that transaction taxes result in more volatile markets, wider bid-ask spreads, greater market impact, and a decrease in volume.
“We need to be vigilant” and “redouble our efforts to educate” regulators and legislators about the potential harmful effects of transaction taxes, McMillan said.