Illinois lawmakers have unsuccessfully tried to tax financial transactions before, but with $7.49 billion in unpaid bills and a possible $1 billion budget deficit in 2019, the tax is one in a range of options on the table this session.
Rep. Mary E. Flowers (D) has taken a stab at the ever-elusive financial transactions tax, also called a “LaSalle Street Tax” after the Chicago financial district. H.B. 23 would impose a $1-per-transaction tax on the Chicago Stock Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Chicago Board Options Exchange. The tax would be imposed on transactions for which the underlying asset is an agricultural product, a financial instruments contract, or an options contract.
The bill defines the term “financial transaction” as the purchase or sale of a stock contract, futures contract, swap contract, credit default swap contract, or options contract. It exempts transactions involving securities held in a retirement account and transactions involving mutual funds. Transactions that are physically filled "via open outcry" on the trading floor would also be exempt, according to the bill. The law would take effect in 2020.
“It’s merely a tax. Everyone else has to pay a transaction tax on everything we purchase,” Flowers told Tax Notes. “Why is it other states and countries can do business but don’t have to pay the same thing?”
The Chicago Mercantile Exchange and Chicago Board of Trade are both operated by CME Group Inc. The group said in a January 3 news release that it reached a record average daily volume of 19.2 million contracts per day during 2018, up 18 percent from 2017, though this number also includes contracts — such as open outcry —that would not be taxed under H.B. 23. Exchange holding company Cboe, which runs the Chicago Board Options Exchange and three other options exchanges, saw a new all-time-high average daily volume of 7.87 million contracts in 2018, up 13 percent from 2017, according to a January 7 news release.
Flowers introduced a financial transaction tax in 2015, under H.B. 106. That bill would have imposed a $1 tax on transactions with agricultural products as an underlying asset and a $2 tax per contract on other derivatives. Flowers said she lowered the tax in H.B. 23 because she wants to be realistic. “I’m willing to negotiate, and I’m not trying to be greedy. I’m just trying to make this state better and put us on a level playing field.”
Over the past five years, numerous financial transaction tax bills have been introduced — including H.B. 106 and S.B. 1970 — but they never made it out of committee. Most were victims of the infamous Illinois budget impasse, which ran for over two years and wasn’t broken until 2017, after a Democratic majority in the House and Senate overrode Gov. Bruce Rauner’s (R) vetoes on several appropriations bills.
The inauguration of incoming Gov. J.B. Pritzker (D) will take place on January 14, and he will begin his term with large, veto-proof Democratic majorities in both the House and Senate. At a televised debate in January 2018, Pritzker said he would not support a financial transaction tax, instead favoring a graduated income tax.
According to H.B. 23, the tax is a fair and sustainable source of revenue and is intended to promote job growth and economic stability while reducing the negative effects of high-frequency trading.
Pritzker’s fiscal 2020 budget is due February 21.