Are the Democrats proposing a transaction tax on all events in which money changes hands? Is this more than a pipe dream? You decide.

A perennial transaction tax bill

In every term of Congress, Representative Chaka Fattah (D-PA-2) has introduced a bill to impose a 1% transaction tax on nearly every sale. In the 111^th Congress, this bill carried the number HR 4646. In the 112^th Congress, the number is HR 1125. Before this, he introduced HR 3759 (108^th), HR 1601 (109^th), HR 2130 (110^th), and HR 1703 (also 111^th). The purpose of these last four bills was to study the idea of replacing the income-tax system with a transaction tax.

Fattah calls his plan “The Debt-Free America Act.” On April 15, 2011, he defended it thus:

If the goal is to get our nation out of crippling debt, I have offered a serious proposal: H.R. 1125, the Debt Free America Act. It calls for a penny on the dollar transaction tax on most transactions in the economy with a rebate on incomes under $250,000. It retires the national debt within 10 years and shows the way to overhauling our tax system. This is the legislation that I asked the House Rules Committee to include in the budget plan.

The text of the bill has twelve findings. Many of these are “conclusory,” that is, they are matters of opinion, not objective fact. The first three findings might be true, but they depend on the kind of changes that anyone cares to make in the tax code.

Fuzzy math

A transaction tax would in this case take one percent of the full amount of any sale as a tax. The Fattah plan calls for rebating all such taxes that anyone having an income less than $250,000 would pay. (How is the government to find out who makes that much money? His bill doesn’t say.)

He says that such a tax would pay down the national debt in 10 years, and:

provide incentives for private sector investment in capital goods such as manufacturing plants and facilities, clean energy generation, and infrastructure development, creating the economic conditions for increased capital stocks and greater economic output, leading to job growth and economic expansion.

In other words, make-work projects, like those that the man now holding office as President, Barack H. Obama, proposed on his bus tour.

His numbers, quite simply, do not add up. Even a full confiscation of all incomes above $250,000 would not redeem the debt. But Fattah thinks he can do it by taxing all transactions at one percent.

A hidden trap

The current version of the transaction tax bill has this Trojan horse: yet another “Task Force for Responsible Fiscal Action.” It would include the Secretary of the Treasury, another administration official, and four each Republicans and Democrats from each chamber of Congress. If this sounds familiar, it should. The Joint Select Committee of Congress, that the Budget Control Act of 2011 sets up, consists of three each Republicans and Democrats from each chamber. The difference, other than the size of the committee, is that the Fattah committee would have two administration members. That’s ten to eight in favor of the party that has the White House, and the White House wins.

Any danger of passing?

Representative Pete DeFazio (D-OR-4). Photo: US House of Representatives

The left-leaning “fact-checking” site Snopes.com calls this bill Chaka Fattah’s “hobby horse.” Neutral sites like Gov.Track.Us and OpenCongress.org do show that Fattah’s bills have never obtained a single co-sponsor, and never gotten out of committee. HR 1125 is languishing in the House Appropriations Committee right now.

But: Nicholas Sarkozy of France and Angela Merkel of Germany proposed just such a transaction tax on “equities, derivatives, and currencies.” Franklin Sanders of The Moneychanger reports that European stock markets fell hard on that news.

Persistent rumor has other Democrats sponsoring Fattah’s bill, though they have never done so in writing. Last year, a rumor accused Rep. Pete DeFazio (D-OR-4) and Senator Tom Harkin (D-IA) of introducing HR 4646, each in his own chamber. DeFazio indignantly denied the rumor. But in so denying, he suggested that he might accept a one percent transaction tax on stock sales, similar to what Sarkozy and Merkel proposed.

Note: Senator Harkin would have had no business introducing a Senate equivalent of this bill. Article I, Section 7 of the Constitution says:

All bills for raising revenue shall originate in the House of Representatives.

But HR 1125 will stay active until the 112^th Congress adjourns next year. The Joint Select Committee (see above) could easily include its language in any proposal they send to the House and Senate. Failing that, Chaka Fattah will no doubt introduce and re-introduce and re-re-introduce his bill in every term of Congress from now on, until he fails of re-election, retires, or dies in office.

Featured image: Representative Chaka Fattah (D-PA-2). Photo: US House of Representatives.