Representative Peter DeFazio (D-OR) introduced legislation, titled "Putting Main Street FIRST: the Finishing Irresponsible Reckless Speculative Trading Act," that would levy a 0.03% tax on certain securities purchases (including stock, partnership interests and debt instruments) and derivative transactions. Mr. DeFazio stated that the legislation is intended to "discourage the same speculative financial trading that led to the 2008 Wall Street collapse and 2010 'Flash Crash.'"

The Joint Committee for Taxation determined that the proposed tax would raise $417 billion over a ten-year period, according to Mr. DeFazio. He asserted the importance of that figure:

The only way we can level [the American economy's "playing field"] is if we rein in reckless speculative financial trading and curb near-instantaneous high-volume trades that create instability in the stock market and our national economy. These financial practices have no intrinsic value, and exist to make a quick buck for already-wealthy speculators.

The proposed tax would apply to transactions that occurred after December 31, 2017.

Commentary / Steven Lofchie

Financial trading had nothing to do with the market collapse in 2008 (although suggesting that it did clearly helped Michael Lewis sell books). Representative DeFazio appears to be either unfamiliar or unimpressed with evidence showing that a single trader's activity (not one of the type disparaged by the Representative) precipitated the Flash Crash. See  Findings Regarding the Market Events of May 6, 2010. Apart from that, the practices that would be taxed by his bill essentially are market-making activities. The focus on those specific activities is valuable, providing liquidity to the market and lessening the spread between buyers and sellers. There is a wealth of data contradicting Representative DeFazio's assertions. See, e.g., The Diversity of High-Frequency Traders, Studies Indicate That High-Frequency Trading Is Beneficial to Canadian Equity Market, and FIA Releases Futures Volatility Study.

Second, Representative DeFazio should consider how much business will be taken out of the country if punitive taxes are imposed on trading. Such financial regulatory measures, which have no basis in economic policy, are of a kind that give Brexit a real chance of succeeding. The United Kingdom has only to adopt sensible regulations and allow other countries to destroy their own markets for the exit to work in its favor.

Third, this bill is geographically biased. It hits the local economies of places that are financial centers: New York, New England and New Jersey. Let's hope that local politicians reject this suicidal form of populism for the good of both national and regional economies.

If the Representative from Oregon is so interested in putting Main Street businesses "FIRST," then perhaps he should, to borrow from the Representative's own rhetoric, consider a tax on high-tech click-through businesses run by fabulously wealthy elitists that destroy local brick-and-mortar businesses. He wouldn't even have to change the acronym in the bill's title to accommodate his new target, since the bill could be called "FIRST: the Frenzied Internet Robots Stifle Two-legged store owners Act." A better option, however, is for him to tone down his rhetoric and engage other representatives in a reasoned, grounded, reality-based discussion about doing what is right for the economy and the country as a whole.

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