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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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The Impact of a Financial Transactions Tax
• A broad-based financial transaction tax (FTT) in the United States would
be a substantial revenue source. For example, the Inclusive Prosperity Act
proposed by Sen. Bernie Sanders (I-VT), with an FTT levied at 0.5 percent
on stocks, 0.1 percent on bonds, and .005 percent on derivatives, has been
estimated to raise between approximately $60B and $220B annually.
• An FTT would raise both explicit and implicit transaction costs, decreasing
trading volume and lowering asset prices. The decrease in trading volume
would reduce the revenue raised by the tax. It is difficult to predict the
magnitude of this reduction. As a result, many existing FTTs have missed
• Depending on the design of the tax, derivatives could potentially be
substituted for their underlying securities to avoid the tax, reducing the
revenue the tax raises.
• An FTT would fail to meet its goal of discouraging risky financial activity.
Due to the higher transaction costs, investors and institutions would be
incentivized to avoid rebalancing their portfolios and leave risk unhedged.
Furthermore, investors and institutions moving to derivatives to avoid the tax
would face additional risks associated with trading those instruments.
• The existing literature is inconclusive as to whether an FTT would increase
or decrease volatility. Higher volatility leads to lower compound returns and
increased risk for investors.
An FTT would substantially reduce high-frequency trading (HFT). HFT has