It was front page news when several New York-based stock exchanges threatened to pull their facilities out of New Jersey if Gov. Phil Murphy and the Legislature move forward with a financial transaction tax. You might not be aware, but northern New Jersey is host to many server “farms” that support the trading that takes place on Wall Street. On Sept. 26, all U.S. exchanges plan to simulate a day of trading through servers located in the Midwest — where there is no financial transaction tax. The New York Stock Exchange is taking it a step further by running trades for one of its exchanges from the Midwest for an entire week. This tax could very well be the catalyst for yet another industry to leave the Garden State.
The proposed bill would impose a tax on persons or entities that process 10,000 or more financial transactions electronically in New Jersey — one-quarter of a cent on each transaction. At first glance, it doesn’t seem like it would generate much revenue, but, because there are billions of transactions daily, the Legislature estimates the tax could raise as much as $10 billion annually. But at what cost?
The FTT would clearly impact the wealthy, as they add to their holdings and trade more frequently. But the reality is that all investors’ portfolios will take a hit, including middle-class residents investing for their retirement savings and 401(k) plans. It would have a chilling effect on high-frequency trading and could lead to a reduction in liquidity for investors — trapping them in investments as the prices drop. Because the tax is imposed per transaction, it will make its greatest profit off lower-priced, smaller stocks.
There is also a question regarding the legality of the tax — since it is imposed on each share traded, even those not located in New Jersey would be subjected to the tax. It’s more likely that, if all goes well with the testing of the servers in the Midwest, it would be easier for stock exchanges to transfer trading platforms to the Midwest and avoid court altogether. On the federal level, Sen. Bernie Sanders (I-Vt.) has introduced a bill that would impose an FTT, but it has gained little to no traction among his fellow members of Congress. Why? Because while it may raise billions on the state level and trillions on the federal level, the majority of the revenue would hit the markets’ smallest investors.
Is this how we build a stronger and fairer New Jersey? On the backs of the markets’ smallest investors, largely saving for retirement? While at the same time driving the trading servers from the Garden State? We can and must do better to find smart new revenue streams — the FTT is not one of them.
Anthony Russo is president of the Commerce and Industry Association of New Jersey.