Alternative Investments: Bernie’s FTT – A Gut Punch to Americans’ Retirement Savings
The Financial Transaction Tax proposed by Bernie Sanders and other Dems will rip a chunk out of the common American’s retirement kitty.
Bernie Sanders has emerged as the clear front-runner in the 2020 nominating contest after the final debate held Tuesday in South Carolina. It’s another matter that he took it on the chin during the debate, and that the Washington Post ranked him as one of the losers.
However, in the run-up to the debate, Stuart Varney, Fox Business, drew up a list of “attack lines” that other Dem candidates could hurl at Sanders to take him down a peg or two. One of these related to the proposed Financial Transaction Tax (FTT), which Sanders calls a “tax on Wall Street speculation.”
“Bernie will impose a tax on all financial trades. That would really hurt mutual funds. Attack line: why are you hurting the 100 million Americans with a 401(k) or an IRA? That’s our pension money,” Varney says.
How the FTT would hurt Americans’ savings
More than half of Americans invest in the stock market. They do so either directly or through a retirement fund such as a 401k or IRA.
Again, over 40% of Americans invest in college education savings plans such as 529 plans.
How would a 10-basis point FTT (0.1%) impinge on these savings vehicles?
The Vanguard Group estimates that an average investor would need to work for nearly 2.5 years longer to achieve the same retirement corpus as one without the tax. (Modern Markets Initiative)
Similarly, a 0.1% FTT would require a college saver to assume an extra $7,800 in student loans.
How the FTT would hurt Americans’ pensions
A presentation on the website of Modern Markets Initiative (MMI) points out that the FTT would impact pensions adversely. Because the FTT taxes every stock and bond trade in the US, pension funds would be taxed continuously – because they trade continuously.
Therefore, increasing transaction costs for pension funds would only worsen their financial condition, given that they are already underfunded by $1 trillion.
According to MMI, the FTT is a tax on Americans’ retirement.
(Note: MMI represents high-frequency traders, a group that would be seriously affected by the FTT)
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