A coalition of financial institutions that includes the two largest securities markets in the country wrote state’s congressional delegation earlier this week, warning that a proposed tax on financial transactions would push financial data centers out of New Jersey.
“We write to you to express our concern that recent proposals to impose a financial transaction tax in the state of New Jersey will make access to the U.S. markets more expensive for investors and may ultimately result in revenue loss, not gain, for the state,” the coalition said in its letter to all 14 of New Jersey’s federal lawmakers.
The coalition, which has dubbed itself the Coalition to Prevent the Taxing of Retirement Savings, includes in its membership the New York Stock Exchange, Nasdaq and TD Ameritrade, among others.
The financial institutions have bumped up their political activity over a state-level proposal that would set a 0.25 cent surcharge on people or entities that process more than 10,000 financial transactions in a given calendar year using infrastructure in New Jersey.
Though the bill, sponsored by Assemblyman John McKeon (D-West Orange) and Senate President Steve Sweeney (D-West Deptford), levies the tax on entities that process financial transactions, there are no provisions barring organizations from passing the costs along to buyers and sellers.
Since McKeon announced the proposal in July, financial institutions have threatened to leave the state over the tax. Similar taxes instituted federally in foreign nations have sometimes led capital markets to leave those countries.
The coalition’s letter comes on the heels of a simulated trading day in Chicago, where some markets have threatened to relocate if New Jersey passes its financial transaction tax.
“The financial data center infrastructure by the nature of its design is portable and as a result, the short and long-term impacts of a financial transaction tax imposed on transactions that occur in New Jersey would incentivize entities to move trading infrastructure and jobs out of New Jersey, and would damage the state’s standing as a financial data center hub,” the coalition said in its letter.
The institutions intend to conduct an industry-wide test on Oct. 24.
While top Democrats have expressed a fondness for McKeon’s proposal, they’ve also approached the issue with a degree of caution not often seen in Trenton.
Last month, Gov. Phil Murphy wasn’t prepared to commit to the tax, which was not scored in the nine-month budget Murphy signed into law Tuesday.
“I would just say it’s more ‘if’ than ‘when,’” he said on the New Jersey Globe Power Hour, adding he liked the idea.
The governor declined to give an estimate for how much money the transaction tax would bring in annually, saying only that it would be “a significant item.”
In its more recent communications, the coalition has also taken to warning the tax would negatively affect ordinary New Jerseyans with money invested into retirement plans and college funds.
While middle class investors with money in mutual and indexed funds may be somewhat impacted by the tax as firms make changes to their portfolios, the greater share would fall on high frequency traders.
But that argument is still largely secondary for financial institutions, who could stunt the tax’s revenue by leaving the state.
“It has been proven time and time again that transaction taxes do not work,” the coalition said. “Previous attempts demonstrate that not only will it fail to generate anywhere close to the projected revenues, it will change behavior in unintended and irreparable ways that will end up causing the state to lose meaningful existing revenue.”