Pensions & Investments: Pension funds cannot afford Sanders’ tax on financial transactions

Institutional investors continue to navigate a challenging landscape marked by geopolitical risks, low yields and sizable long-term obligations. Now, coming from Sen. Bernie Sanders, I-Vt., is another challenge posed by the so-called financial transaction tax included in the

Mr. Sanders continues to mistakenly point to a FTT as a way of ensuring Wall Street “pays its fair share” toward low-cost colleges, accessible health care and increased regulatory budgets. But despite his belief that the FTT is a silver bullet, the reality is that any tax on institutions trading large volumes of securities would dramatically harm public and private pension funds that represent the interests of millions of American workers.

Instead of becoming a way to collect a pound of flesh from Wall Street, the tax on trades ultimately would become an additional tax on savings for anyone participating in a pension plan or similar fund. They would pay the tax directly, and market intermediaries would need to charge more to pass the additional cost through to investors. We might as well consider it a one-two punch.

The Modern Markets Initiative’s study of the potential impact on pension plans suggests there could be startling costs. New York City and California employee pension funds would owe more than $1 billion and $500 million, respectively, in yearly FTT fees. The federal Thrift Savings Plan would be hit with $250 million in annual fees, while a hypothetical local public pension fund portfolio with $2 billion in assets would be on the hook for an additional $4 million in an average year.

As the numbers suggest, the real-world impact on pension funds and — in turn — individuals would be substantial. That is why institutions and individuals alike should take exception with the way Mr. Sanders is continuing to promote the FTT as a symbol of his solidarity with the middle class.

The goals of establishing affordable college, increasing access to health care and improving regulatory oversight are all commendable. However, the senator’s road to getting there — one paved by a new tax on current and future retirees — is an impassible one.

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