Last week, Robinhood testified in front of the House Financial Services Committee. Not the bow and arrow wielding saint of Sherwood Forest, the stock market trading app a young person in your life has on their smartphone. Turns out, it was apps like Robinhood at the center of the GameStop stock explosion earlier this year that we all heard about, even if we didn’t fully understand what all the fuss was about.
During the uproar, Robinhood actually suspended purchases of GameStop stock. They just flat out stopped people from buying or selling even if they wanted to. Putting the brakes on these amateur traders trying to participate in the market ultimately led to the app’s makers being called before Congress to defend such a controversial and legally dubious decision.
The good news is that lawmakers appear to be taking this incident seriously. In fact, they may soon introduce legislation that reins in the power of Wall Street and hedge funds to make the market more fair for the rest of us.
The bad news is they run the risk of moving so quickly that they cause unintended consequences for bystanders to this whole episode — Wisconsin seniors. One proposal being discussed as part of an overall package is a Financial Transaction Tax (FTT). You might have heard of it referred to another way, as a tax on your retirement.
An FTT would levy a tax on every single sale or trade of a stock in the market. How is that a tax on your retirement? Because millions of workers, small business owners and union members make low risk investments in 401K accounts, pension plans, and 529 education savings accounts. All of these types of investment vehicles would be taxed under an FTT, simply for making the sales and trades required to maximize your investment. And that cost would be passed directly on to consumers simply for doing the right thing for their personal finances.
Those pushing for this transaction tax are concerned about high frequency traders and those looking to manipulate the market to their own benefit. They should be. I am too. But that does not mean that we should rush to a solution that could end up doing more harm than good.
Parents and grandparents with a 529 savings account for their child or grandchild could see thousands of dollars taken out of their account before a student graduates high school. Union members could be forced to postpone retirement. These are real possibilities if an FTT is adopted.
The COVID-19 pandemic has made a lot of things pretty clear. Chief among them is how much risk there is for working and middle class families. Why in the world would we choose to make those impacted most by the pandemic even less economically secure over the long term? That doesn’t make sense to me. We need to defend the economic well-being of retirees and working people, not jeopardize them.
My hope is that our representatives in Washington keep their working-class and older constituents in mind as they address these issues. There is no question that Wall Street needs to be more carefully regulated and the playing field between Main Street and Wall Street has to be leveled. But a financial transactions tax that puts Wisconsin seniors, students and workers on the hook is the wrong approach, particularly when options such as a wealth tax – which would be borne squarely by those at the very top – are on the table.