Lawmakers Push to Cut Fees on Stock Transactions

Lawmakers on both sides of the political aisle are beginning to line up behind a congressional push to cut the fees the federal government collects on stock transactions, a move they say will save investors money and restore the original intent of the fees.

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The effort's supporters say the fees have become a tax used for general government purposes, rather than for paying the Securities and Exchange Commission's bills. They also say a bill to cut the fees, which stalled in Congress last year but which the Senate Banking Committee reintroduced late last month, now has a far better chance of passing, particularly with a new Republican administration in office.

"I hope and believe that every holder of every retirement fund and every mutual fund in America will get involved in what is really a grassroots crusade to end the abuse of these user fees," banking committee Chairman Sen. Phil Gramm (R., Texas) said in a recent statement.

The fees were established as part of the Securities Act of 1933 and the Securities Exchange Act of 1934, following the stock market crash. But the amount of money collected from the fees amid the heady stock market activity of the 1990s far surpassed the amount spent on the SEC, and to the ire of critics like Gramm, the surplus ended up in the federal government's general coffers.

Different Directions

For most of the 1980s, the amount of money collected through stock transactions and securities registration fees fairly closely tracked the SEC's annual appropriation, according to figures provided by the agency. But in the 1990s, the volume of fees collected grew exponentially -- from $230 million in 1990 to almost 10 times that amount in 2000. Spending at the SEC, however, grew at a far slower rate. In 1990, Congress appropriated $267 million for the agency to spend and in 2000 gave it $368 million.

Fees Collected for Stock Transactions and Registrations vs. Money Spent to Operate the Securities and Exchange Commission

Source: Securities and Exchange Commission

The new bill, which has 10 Senate sponsors so far, seeks both to reduce the amount of fees collected in securities transactions and to increase the pay of SEC staff members.

The government collects a fee of 1/40 of 1% of the value of each security registered -- or about $250 for $1 million worth of stock. The new bill would decrease that fee to $67 per $1 million in stock until 2007, when it would drop further to $33.

It also collects transaction fees of 1/300 of 1% of the value of stock bought or sold, or about $33 for $1 million in stock traded. Under the new legislation, those fees would be established based on an annual cap in overall transaction fee collection depending on SEC expenditures.

Gramm has said he also intends to push for higher salaries for SEC staff members, something that has been a recurrent plea from outgoing SEC Chairman Arthur Levitt.

Support

The fee-reduction bill is supported by various securities industry organizations, including the Chicago Board Options Exchange and the Security Traders Association.

The CBOE argues the fee reduction is warranted because the fees were never intended to help finance general federal government spending but rather just securities regulation. Lee Korins, president of the security traders group agrees. "We think it's just not fair," he says. "Here's a law that was put in effect 60-odd years ago for the sole purpose of funding the SEC. ... It's become a tax." Korins acknowledges the fee cut would mean little to the average individual investor. But he says it would touch many people invested in the markets through institutional investors like pension funds.

But there's a big potential problem with the bill, says Robert McIntyre, executive director of the Citizens for Tax Justice, a Washington, D.C., tax watchdog group. McIntyre says he doesn't have a position on the securities fees themselves. But even if the money from the fees isn't being spent on securities regulation, it's being spent on something, he says. Chop the fees and you have to find new revenue somewhere else or cut other government services.

"It's not so reasonable when you say you're going to get rid of it without explaining how you're going to make up the cost," he says. "It's sort of cheap-shotting when you don't explain that part of the equation."

Korins thinks that's an exaggeration, particularly since the federal government is enjoying huge budget surpluses. "Where is the shortage of funds in Washington?" he says.