Van Hollen Discusses Merits of Financial Transaction Tax at Banking Committee Hearing

Today, U.S. Senator Chris Van Hollen (D-Md.), a member on the Senate Committee on Banking, Housing, and Urban Affairs, questioned witnesses on the merits of implementing a financial transaction tax during a Committee hearing titled, “Who Wins on Wall Street? GameStop, Robinhood, and the State of Retail Investing.” As the Senator notes in his remarks, Senators Brian Schatz (D-Hawaii), Elizabeth Warren (D-Mass.), and he are preparing to reintroduce legislation implementing this fee. A full transcript of the Senator’s exchange is available below and video is available here. 

U.S. SENATOR CHRIS VAN HOLLEN (D-Md.): We know that Wall Street has made an art of high-frequency trading and rank speculation that’s fattened the wallets of a few, while putting everyday investors at greater risk. And the market events of last January brought attention to Robinhood’s practice of selling user data to hedge funds that do high-frequency trading. 

As has been mentioned today, one way to deal with that and cut down high-frequency trading and its risks to market stability would be to place a small fee – say 0.1% – on these Wall Street transactions. It would generate billions of dollars that we could invest in greater opportunity for other Americans. It would reduce wealth and economic inequality and reduce volatility in the market. That’s why Senator Brian Schatz and I plan to shortly reintroduce our bill to impose a financial transaction fee – a high roller fee.

Let me start with Ms. Robasciotti. I know you mentioned this – could you just elaborate a little bit more on, first of all, the risks of high-frequency trading, and then second, how a financial transaction fee of the kind I’m talking about could reduce that and be a benefit?

RACHEL J. ROBASCIOTTI, FOUNDER & CEO, ADASINA SOCIAL CAPITAL: Certainly, thank you so much for the question Senator. I am happy to hear that you will be reintroducing that legislation. In terms of the risks, I mostly see them as systemic when we have that classic recipe for market disruptions. What we’ve seen time and time again, whether it’s the Great Recession or the Flash Crash, is that high-frequency trading simply exacerbates that.

In terms of how the financial transactions tax actually shows up for regular Americans – if you would allow me, I would like to use myself as an example. I was born into rural poverty in a segregated town. I grew up in an all-black family. We were very poor. I’ve been homeless multiple times as a child. Thankfully, I graduated at fifteen, went to college. Any of the extra money that I made in my entire working career has gone either to my extended family or back into my business. 

But at the age of 42, I have managed to save $100,000 in my retirement account. I was looking at my average trades – my average trade size is about $9,000 of my own account. If the financial transaction tax that you’re talking about of ten basis points or 0.1% were to come about, that would cost me about $9 per trade, and I have about 20 trades per year. And this is very similar to the situation that is true for most of my clients. $9 is less than the $9.95 that the discount brokers were charging when they were charging the commissions for trades.

And so, to me, that seems very reasonable, as a small amount of insurance – a price that I pay as a participant in an orderly, fair, and efficient market. And one of the ways that I know that that’s happening is because it is significantly slowing down the non-human algorithmic high-frequency trading that has caused so much damage.

VAN HOLLEN: Well, I appreciate that. As you say, it really would create a disincentive – a financial disincentive – for that high-risk conduct that puts other people in the market at risk. 

Professor Ghilarducci, you also mentioned this. Could you just elaborate a little bit more? Because this going to be a big debate. I think as we consider different options for revenue, this will be an attractive one because in addition to raising revenue, it has these other benefits. Can you talk a little bit more about that?

DR. TERESA GHILARDUCCI, PROFESSOR OF ECONOMICS, THE NEW SCHOOL: Right, I think the economic research has been done. It’s an idea whose time has come, especially if you reintroduce your bill. The cost and benefits have been evaluated since James Tobin at Yale in the 1970s proposed it. And economist after economist have re-run the numbers and if it’s too high, it will have bad effects on long-term savings, if it’s too low, it won’t have any effect. If you get it just right – and actually 0.1% is about right, thank you for reminding me that – that what it does is, it shifts from high-frequency trading – it changes behavior towards more long-term holdings. Exactly where all of us want people to be with their stocks. So, I think you are on very solid ground in terms of the academic research, that the costs are too high on the tax and the benefits of just the right one encourages wealth accumulation.

VAN HOLLEN: Thank you, I look forward to following up with you and others on the panel as we shape this and have the debate.