HR4035-119

What This Bill Does

The Wall Street Tax Act creates a financial transaction tax in chapter 36 of the Internal Revenue Code. The tax applies to each covered transaction with respect to a security. The rate phases in: 0.02 percent for transactions after 2025 and before 2027, 0.04 percent for 2027, 0.06 percent for 2028, 0.08 percent for 2029, and 0.1 percent after 2029. The base is generally the security's fair market value at the time of transaction, and for derivative payments the payment amount. Covered transactions include purchases on or subject to U.S. exchange rules or involving a U.S. purchaser or seller, and derivative transactions traded on or subject to U.S. exchange rules or involving a U.S. person with rights under the derivative. Initial issuances of stock, partnership or trust interests, and debt securities are excluded, and certain exchange-traded debt with fixed maturity of not more than 100 days is excluded from security treatment. Exchanges pay for transactions on U.S. boards or exchanges; U.S. brokers pay for other executed purchases; otherwise purchasers, sellers, payors, or payees pay depending on U.S.-person status and transaction type. Exchanges are treated as both sales and purchases. Derivatives are broadly defined to include options, forwards, futures, shorts, swaps, and similar contracts tied to stocks, partnership or trust interests, debt, real property, actively traded commodities, currency, rates, prices, indices, formulas, algorithms, or other Treasury-prescribed items. Exclusions cover physical-delivery real property contracts, securities lending returns, compensatory options, insurance, annuity, and endowment contracts, affiliated-group stock derivatives, qualifying physical-delivery commodity contracts, and certain debt features.

Who Benefits and How

Federal taxpayers benefit from a new revenue source tied to securities and derivatives trading. Financial reform advocates benefit from a tax designed to put costs on high-volume trading activity. Long-term investors may benefit indirectly if the tax discourages very short-term trading strategies. Treasury tax policy staff benefit from authority to prescribe additional derivative items and exclusions.

Who Bears the Burden and How

Securities exchanges must pay the tax for covered transactions occurring on or subject to U.S. exchange rules. U.S. brokers must pay the tax for covered purchases they execute outside the exchange payment rule. Stock purchasers face transaction tax costs on covered purchases involving U.S. markets or U.S. persons. Derivative traders face tax on covered derivative payments or transactions. High-frequency traders bear recurring costs as the rate rises to 0.1 percent after 2029. IRS transaction tax staff must administer rates, bases, responsible parties, derivative definitions, and exclusions.

Key Provisions

• Creates a tax on covered securities transactions.
• Provides phased rates from 0.02 percent in 2026 to 0.1 percent after 2029.
• Applies the tax to fair market value for securities and payment amounts for derivatives.
• Limits the tax by excluding initial issuances and certain short-term exchange-traded debt.
• Requires exchanges, U.S. brokers, purchasers, sellers, payors, or payees to pay depending on transaction type.
• Provides broad derivative definitions and exclusions for specified real-property, securities-lending, compensatory-option, insurance, affiliated-group, commodity, and debt arrangements.