It’s rare these days to find a bill that garners bipartisan support, but members of both parties in the U.S. Senate are getting behind the Marketplace Fairness Act, which will enable states to collect sales taxes on products sold by online, out-of-state vendors. The goal of the bill is to level the playing field between online retailers — which don’t have to collect sales taxes on items sold to customers in states where they have no physical presence — and brick-and-mortar vendors.
Predictably, the bill has the support of big brick-and-mortar retailers like Walmart, and is being fought by online outfits like eBay. More surprisingly, Wall Street jumped into the fray yesterday, with one industry group — the Securities Industry and Financial Markets Association (SIFMA) — coming out against the measure. Needless to say, SIFMA probably isn’t concerned about you paying sales tax the next time you buy a blender on Amazon. Here’s what SIFMA had to say:
We believe the impact of this legislation on trade in services has not been adequately explored by Congress. The bill could lead to unexpected costs being passed on to consumers of financial services, including sales taxes on services or state-level stock-transaction taxes.
So while the bill’s stated goal is simply to force online retailers to collect sales tax that is now going uncollected by states, Wall Street sees it as a Trojan horse that will allow state governments far away from New York City to soak the financial-services industry with new sales taxes on financial transactions. This strikes me as a rational fear given Wall Street’s unpopularity, and the fact that, though it has the ear of Washington and Albany, its lobbyists are far less influential in most state governments across the country.
And if there’s anything the financial-services industry is opposed to, it’s a financial-transaction tax. The industry is currently trying to beat back a European financial-transaction tax that is being implemented in 11 countries in the E.U. The E.U. tax would charge a 0.1% tax on transactions involving equity or debt and 0.01% on derivatives transactions, and while these amounts may seem trivial, it is expected to raise tens of billions of dollars from the large volume of such transactions that occur every year.
Many in the U.S. are eager to implement a similar tax. In February, Senator Tom Harkin and Representative Peter DeFazio introduced a bill that would tack a 0.03% tax on financial transactions, while Representative Keith Ellison introduced a more robust version last week, which he claims will raise more than $1 trillion over 10 years.
The logic behind such a tax is not only that it would raise much needed revenue, but that it would be a disincentive to the sort of overzealous speculation that contributed to the financial crisis and the high-frequency trading that has swept Wall Street in recent years.
But none of these proposals has actually gained much ground. Though a tax aimed at Wall Street might be preferable to most Americans when compared with, say, the recent hike in payroll taxes, it isn’t entirely clear we need to raise taxes in the short term, given the economy’s weakness. On top of that, there would most certainly be negative effects of such a tax on the economy that need to be carefully weighed beforehand.
Law professor (and New York Times DealBook columnist) Steven Davidoff summed up these concerns recently, citing studies that showed that financial-services taxes actually increases stock-market volatility rather than decrease it, and that poorly designed taxes could actually encourage the use of more exotic financial instruments that could increase instability in capital markets.
SIFMA isn’t currently opposing the Marketplace Fairness Act out of fear of a federal financial-transaction tax, but out of a fear that states and localities will start imposing them. The case against allowing a proliferation of different state-level financial-transaction taxes is probably more robust, as such a system could be easily abused by wealthy taxpayers, leaving the middle class to shoulder the burden.
But this latest twist in the Marketplace Fairness Act could be a nice test for those of us interested in just how much sway Wall Street has over Washington. If special dispensations for financial services begin cropping up in later iterations of the bill, we’ll know whom to thank.