New Bill Imposes Tax on Securities Transactions to Recoup TARP Costs

Rep. Peter A. DeFazio, D-Ore, has introduced on February 13, 2009, H.R. 1068, otherwise known as the” Let Wall Street Pay for Wall Street’s Bailout Act of 2009.”

The bill, entitled “To amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program,” would impose a securities transfer tax to pay for the cost of the Troubled Asset Relief Program (“TARP”).

The proposed legislation adds a new Section 4475 to the Internal Revenue Code (“IRC”) to impose a tax on each covered securities transaction in an amount equal to the applicable percentage of the value of the security involved in the transaction. The tax would be paid by the trading facility on which the transaction occurs.

This transfer tax would be on the sale and purchase of financial instruments such as stock, options, and futures. The bill provides that a quarter percent (0.25percent) tax on financial transactions could raise approximately $150 billion a year.

The bill further provides that the tax on each covered securities transaction would be an amount equal to the applicable percentage of the value of the security involved in the transaction. The bill defines applicable percentage to mean the lesser of the specified percentage or 0.25 percent. In turn, specified percentage is defined to mean the percentage that the Treasury estimates would result in the aggregate revenue equal to the net cost of carrying out the TARP.

The legislation requires the Department of Treasury to implement the tax in consultation with the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”).

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