Concerns about volatile financial markets and the search for new sources of federal revenue have spurred interest among lawmakers and other commentators in imposing new taxes on securities transactions. Generally, a "securities transaction tax" could apply to the value of trades in stocks, bonds, mutual funds, exchange-traded funds, futures and options, other derivative instruments, and other securities.

While a securities transaction tax can be structured in a variety of ways, ICI believes that any such tax could harm individual fund investors who are investing to meet retirement, education, and other financial goals. No matter how such a tax is structured, it would create market distortions that would reduce the efficiency of markets for all participants—including fund investors—by reducing market volumes, impairing liquidity, and distorting price discovery.

For fund investors, a securities transaction tax would raise the cost of trades that a fund makes for its portfolio and would depress fund returns. Depending on how the tax is structured, it could subject mutual fund and ETF shareholders to double taxation—for example, if the tax is collected both on trades in fund shares and on stock trades that mutual funds routinely engage in to invest shareholder cash, meet shareholder redemptions, and adjust fund portfolios. If the tax is applied to shares in money market funds, it would place a heavy burden on their shareholders, many of whom buy and sell shares frequently because they use these funds as transaction accounts.

Some versions of securities transaction taxes propose to relieve individual investors of the tax through various exemptions and exclusions. One such proposal is H.R. 4191, the "Let Wall Street Pay for the Restoration of Main Street" Act, introduced on December 3, 2009. ICI's analysis shows, however, that this bill would still subject fund investors to significant costs. While investors would not be taxed for buying shares in mutual funds, the funds' stock transactions on their investors' behalf would still be taxed, reducing investors' returns. As drafted, the bill does not allow mutual fund investors to claim tax credits to offset the transaction tax imposed on funds' portfolio transactions—reducing returns for fund shareholders in all mutual funds, including those held in retirement accounts.

ICI research also demonstrates that current proposals would impose a securities transaction tax that is several times greater than any tax ever imposed on stock transfers in the U.S.

This page provides information, analysis, and resources on securities transaction taxes from ICI and other sources. Some of the resources relate to securities transaction taxes generally; others are specific to H.R. 4191 or other proposed versions of these taxes.