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Financial Transaction Tax Would Cost NJ Pension Fund Billions of Dollars

Modern Markets Initiative Study Also Shows FTT Impact on NJ 529 Plans, ABLE Plans and 401(k) Plans Would Amount to Hundreds of Millions of Dollars

New Jersey residents saving for retirement, college or other life milestones would see their savings funds ravaged by a transaction tax on trading, according to a new study from the Modern Markets Initiative (“MMI”), the leading advocacy organization for responsible innovation across the financial markets. The report, A Case Study on the Effects of a Financial Transaction Tax on Savers in New Jersey, provides a detailed overview of how a potential financial transaction tax (“FTT”) would impact pension funds, 529 College Savings plans, individual retirement accounts (“IRAs”) and 401(k) plans in New Jersey. The full version of the report can be viewed and downloaded here.

“The study offers conclusive evidence that financial transaction taxes would be a backbreaking burden on New Jersey residents saving for the future,” said Kirsten Wegner, CEO of MMI. “Whether in Washington or in Trenton, lawmakers need to stand up against these onerous taxes.”

The study considers three different versions of the FTT, two of which have been proposed in U.S. Congress. The first version “Type 1,” proposed in the Inclusive Prosperity Act of 2019 (S. 1587), would tax trading 50 basis points on equities, 10 basis points on bonds, and 0.5 basis points on derivatives. The second version “Type 2,” proposed in the Wall Street Tax Act of 2019 (S. 647), would tax trading 10 basis points on equities, bonds and derivatives. A third version “Type 3” includes a tax on trading of 2 basis points on equities, bonds and derivatives in Year 1 increasing linearly to 10 basis points by Year 5.

The startling costs that an FTT would pose to millions of Americans in New Jersey include:

  • For the New Jersey Division of Pensions & Benefits, the impact of the three versions of the FTT after 30 years would be: $8.15 billion for Type 1; $2.35 billion for Type 2; and $2.28 billion for Type 3.
  • For the NJBEST 529 College Savings Plan, the impact of the three versions of the FTT after 30 years would be: $556.94 million for Type 1 (equivalent to full yearly tuition for 735 students ); $216.32 million for Type 2 (equivalent to full yearly tuition for 290 students); and $206.7 million for Type 3 (equivalent to full yearly tuition for 270 students).
  • For New Jersey residents participating in the NJ ABLE plan, the impact of the three versions of the FTT after 30 years would be: $383.35 million for Type 1; $76.67 million for Type 2; and $74.76 million for Type 3.
  • For individual investors and 401(k) plan holders, the impact of the three versions of the FTT after 40 years would be: $8.07 billion for Type 1; $390 million for Type 2; and $193.42 million for Type 3.

The report was researched and prepared by MMI Fellow Gourprabh, a student at UCLA, and goes into extensive detail on how MMI calculated its economic impact projections. For each state pension fund, 529 plan, ABLE plan and 401(k) evaluated in the report, MMI’s analysts have provided detail on the asset class exposure, calculation methods, spread costs and other considerations related to that institution.

Wegner added, “While lawmakers are often well-intentioned in proposing news ways to raise revenue, an FTT would fall squarely on the backs of their constituents.”

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