Message Font: Serif | Sans-Serif
No. of Recommendations: 0
In case anyone's interested, the National Taxpayers Union released a policy paper this past Monday on excessive stock transaction and registration fees. Below is the press release and here is a link to the actual report:

Nation's Largest Taxpayer Organization Targets Transaction Taxes

Excess Fees on Stocks Will Rob Economy of $27 Billion in 8 Years, Group Tells Congress

(Alexandria, VA) -- During hearings today on Capitol Hill, the 300,000-member National Taxpayers Union (NTU) called on Congress to end or at least reduce federal fees on stock registrations and transactions, which currently generate 6 times more in revenues than the costs of the programs they're supposed to fund. The group also released a report today on this and other aspects of transaction taxes.

"America's investors, who make up nearly half of the nation's households, are now paying 500 percent more for a service than costs warrant," said NTU Adjunct Policy Analysts Dr. Bill Orzechowski and Rob Walker, who wrote the report. "Because the 'service' is being provided by the federal government, Congress, not the consumer, is responsible for seeking a refund."

The Section 31 stock transaction fee and the Section 6 (b) stock registration fee were created more than 65 years ago to fund the Securities and Exchange Commission (SEC). Fee collections roughly equaled SEC's expenditures until 1983. Since then, the authors contend, the taxes have become a serious liability:

(1)While share volume on major U.S. stock exchanges has increased 350 percent over the past decade, transaction values -- upon which the fees are based -- have risen even faster. As a result, fee collections have risen ten-fold from 1983-1998, to nearly $2 billion annually.

(2)In 1998, the SEC budget was $315 million, meaning that transaction tax revenues now eclipse the services they are supposed to fund by 500 percent.

(3)Although Congress saw this windfall coming in the mid- to late-1980s, recent "reform" efforts have only burdened taxpayers further. Section 31 and Section 6 (b) fees are slated to drop by 2007, but lawmakers expanded the base of the Section 31 tax to apply to NASDAQ trades.

(4)Even with these rate reductions, an overcharge of $500 million or more will still exist.

(5)Between 1996 and the scheduled rate reductions of 2007, transaction fee overcharges will amount to $15 billion. Compounded at an 11 percent rate of return, this would amount to $27 billion if invested in the stock market.

(6)Hardest-hit by this loss, according to the authors, are younger middle-class mutual fund investors seeking high yields and "broker-dealers" who help new firms raise capital and stay liquid. IRA and 401 (k) gains may be shielded from the personal income tax, but the fund managers who churn portfolios are subject to transaction fees, which are passed along to their account holders. From 1996 to 2000, transaction fees as a percentage of total operating costs of the Chicago Stock Exchange are expected to triple, to 50 percent.

The authors contend that Congress should consider discarding the fee structure entirely, because it is based on the flawed yardstick of transaction value -- one which bears no relationship to the demand for, or the cost of, federal oversight programs. As an alternative, Congress could simply adjust existing fees annually to reflect the amount needed for the SEC's budget.

At the very least, Orzechowski and Walker believe that Congress should make a quicker transition to the reduced rates scheduled for 2007. "If Congress cannot muster the courage to help middle-class investors with modest transaction tax reforms today, it is doubtful that Americans will ever see this pernicious overcharge melt away," the authors concluded.

Would a change in these fees add more cash available to invest in your portfolio - while still sticking to the Foolish advice of less than 2% in commissions?

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.