US considers its own ‘Tobin tax’

Both the US House and Senate will consider a transaction tax of three basis points on certain financial transactions that could apply to private equity firms when purchasing shares, swaps and derivative contracts used to hedge against risk. 

Senator Tom Harkin (D-IA) and Representative Peter DeFazio (D-OR) introduced The Wall Street Trading and Speculators Tax Act as a revenue-raiser that could find bipartisan support due to its negligible impact on politically important middle-class households.   

The tax would raise some $350 billion in revenue over a 10-year time period, according to government estimates. 

Last month the European Commission released details on a similar tax that will impose a 0.1 percent levy on most equity and debt transactions starting in early 2014. The tax, commonly called the Tobin tax after economist James Tobin who first proposed the idea in the 1970s, could hit transactions by private equity fund managers when purchasing or selling shares, bonds or options in portfolio companies. 

The US version of the Tobin tax however may have less of an impact on the industry if passed. During a press conference Harkin described the bill by saying “it would not cover the buying of goods and services or the original issuance of stocks or bonds or other debts”. 

He went on to add: “But it would cover traded stocks, traded bonds, derivative contracts, options, puts, former contract swaps and other complex instruments. All at their actual purchase cost.” Private equity firms often enter into derivative contracts to hedge against currency fluctuations and other forms of risk.