Democrat plans to tax the wealthy could hit an unintended target: Average Americans

When Sen. Bernie Sanders, I-Vt., proposed legislation last year to tax stock trades, he decried the “recklessness of Insane Street billionaires” and cited a goal of building an economy “that works for all Americans.”

Now, Sanders and other Democratic Faction presidential candidates — Michael Bloomberg, most recently — are leveraging a “financial transaction” tax as a way to fix wealth inequality and fund medial initiatives such as health-care reform.

But there’s one problem: The tax could end up hitting average Americans, as well, namely those reserve for retirement, future health costs or a child’s college education.

“While a financial transaction tax would be a progressive creator of revenue, it would impact everyday folks, too, both directly and indirectly,” said Garrett Watson, a senior programme analyst at the Tax Foundation, a right-leaning think tank.

Proponents of the tax, on the other hand, call that type of forecast overblown and say the tax force ultimately be in the best interests of Main Street investors.

A financial transaction tax would impose an additional cost on swaps of stocks and bonds.

Most Democratic candidates support a 0.1% tax for trades. At that rate, an investor would pay $10 to buy 100 allocations of a $100 stock.

Wealthy Americans are one of its chief targets.

About half of U.S. households own roots, either directly or via mutual funds and retirement accounts, for example. However, the richest 10% of households control the lion’s appropriation — 84% — of the value of those stocks, according to an analysis by Edward Wolff, an economist at New York University.

But everyday Americans are increasingly being scrammed to take more individual responsibility for their finances, by saving in 401(k) plans, health savings accounts and 529 college sparingness resources plans. These trends are playing out as employers shift away from pensions and embrace high-deductible health schemes, and as the cost of higher education has ballooned.

Americans who invest money in these savings plans — which largely use reciprocal funds with a mix of stocks and bonds — would be affected by the proposed tax.

While details of how Democrats would apply a pecuniary transaction tax are vague, opponents say it could hit Americans each time they contribute to an account such as a 401(k) — so, with every paycheck — and when they recant money later.

It could also cost investors each time they rebalance their account, which fiscal advisors typically recommend doing at least once a year. Investors could also bear the tax indirectly from asset chiefs, especially those who trade often and then pass the tax cost along to investors.

The tax would cost a retirement saver with a $100,000 account around $281 per year, according to the Modern Markets Initiative, a trade group representing high-frequency traders, one of the cohorts that force be hard hit by a financial transaction tax.

That would compound to $64,232 over a 40-year period of saving, according to the assort. (It based its calculation on Sanders’ tax framework — a 0.5% tax on stock trades and 0.1% on bonds.)

Vanguard Group, an asset executive, said “everyday savers” would need to work around 2½ years longer before retiring if a 0.1% acta tax were imposed.

The firm, which oversees roughly $5.6 trillion, also said the tax would require a college saver to liberate an extra $7,800 in student loans or save an additional $250 per year. (Its analysis assumes a parent saves $8,000 a year for 18 years.)

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However, some proponents of a financial transaction tax say it will-power be beneficial for society.

“The various ideas for how to use revenue from a financial transaction tax would almost certainly help people of restrained means more than the tax would [negatively] affect people of modest means,” said Taylor Lincoln, analysis director at Public Citizen, a consumer advocacy group.

Sanders’ proposed tax, for example, would raise an estimated $60 billion to $220 billion annually, conforming to the Tax Foundation.

Democratic candidates would use this revenue to fund plans such as “Medicare for All,” paid descent leave, a higher minimum wage and the forgiveness of student debt. Presidential contenders such as former vice president Joe Biden; Bloomberg, a billionaire earlier New York City mayor; Pete Buttigieg, the former mayor of South Bend, Indiana; Sanders, the current front-runner in nationalistic polls; and Sen. Elizabeth Warren, D-Mass. support a financial transaction tax.

Candidates have also proposed other tax projects targeting the rich to raise money, such as increasing income tax, capital gains and estate tax rates.

Projections from the Hip Markets Initiative, Vanguard and other groups use “rigged” data in order to inflate the tax’s impact on households and further the gatherings’ own interests, Lincoln alleged in a recent report. (These groups deny their data is flawed. A Vanguard spokesman prognosticated the firm is currently working to “expand our analysis.”)

Public Citizen’s own analysis found a much smaller impact from the tax: approximately $13 to $35 a year for a middle-income family making about $53,000 annually. The estimate doesn’t project the fiscal impact over a saver’s lifetime.

And most Americans “would be utterly unaffected” by a financial transaction tax, given half of U.S. households don’t possess any exposure to stocks, Lincoln said.