It would be bad news for every American investor if New Jersey imposed a financial transactions tax on stock exchange operations that are based in the state. The tax would levy a 0.25 cent tax, or potentially a 0.10 cent tax according to Politico, on a wide variety of financial transactions processed by the exchanges at data centers – like trades of stocks, options, and futures.
The proposed micro-cent transactions tax may sound small when looked at in a vacuum, but it would add up to significant costs when you consider how many transactions take place daily. The value of everyone’s 401(k) and life savings would go down with this new penalty on investing.
Absurdly, New Jersey has increased debt in the recently-enacted state budget, issued $10 billion in new bonds earlier in the summer, and just drastically increased taxes. Yet, state lawmakers are still interested in another tax hike.
Senate President Steve Sweeney recently joined Governor Murphy in calling for the financial transactions tax, so you know it is getting serious.
A cynical political calculation may have them thinking they are getting a free shot to pick on Wall Street so state government can keep getting more bloated, but the rug may get pulled out from under them. That’s because the exchanges are looking at leaving the state, a process that may not be that difficult.
The exchanges have run tests showing they can use out-of-state backup data centers to process the day’s trades. NASDAQ is talking to Texas about moving operations to the Lone Star State – they would not be the first New Jersey business to head south looking for relief from excessive taxes.
The state thinks they are going to get $10 billion per year from this tax, but they could be left with little to nothing. In fact, the tax would cost government money.
A new Modern Markets Initiative study finds a financial transactions tax would cost the state pension fund at least $2.2 billion, and potentially over $8 billion, depending on how it is implemented. It would hurt the state’s 529 college savings plan as well, to the tune of at least a $207 million loss. These figures are over 30 years.
The Town of Mahwah could lose $1.8 million in annual property taxes if the New York Stock Exchange data center closes, as the Garden State Initiative highlights. That is just a taste of the lost property taxes, income taxes, and sales taxes that occur when productive operations, and workers, are driven away.
Even for a state that has honed destroying its own tax base into an art, the micro-cent financial transactions tax is on another level. It’s not just bad for business and investors, it is a disaster for public employees too. This is a pure desperation play that could completely backfire, leaving New Jersey with nothing but air and lost opportunity. Legislators need to come to their senses and kill this bad deal.
DOUGLAS KELLOGG is State Projects Director for Americans for Tax Reform (ATR).