- Lawmakers are grappling with budget crisis, as time runs out
- Bill would impose tax on transactions at exchanges in Illinois
As Illinois grapples with a budget crisis, lawmakers are floating an old idea in their search for new revenue: a tax on trading on exchanges based in the state, including some of the biggest financial markets in the world.
The bill is in early stages and faces long odds of approval. But the measure -- targeting trades on the Chicago Mercantile Exchange, Chicago Board Options Exchange and other markets -- was up for debate on Thursday at a hearing in Springfield, the state’s capital.
Speaking at the event, CME Group Inc. Executive Chairman Terry Duffy said a financial transaction tax would be a disaster for the state’s economy. His Chicago-based company, which owns the Chicago Mercantile Exchange, handles futures contracts linked to everything from key stock indexes to agricultural commodities and interest rates.
“CME Group and our colleagues in the industry are engines of job creation and economic opportunity for the state,” Duffy said at an Illinois House Revenue and Finance Committee hearing. “If a financial transaction tax is enacted in Illinois, our customers will leave our markets, and we will be forced to consider alternatives to remain competitive in our global industry.”
The bill had support. Richard Whitney, an attorney from Carbondale, Illinois, said he was speaking on behalf of a state alliance supporting the bill, which he said would help resolve the state’s budget deficit.
“The single most dramatic, single-bullet solution would be what is sometimes called a financial transactions tax, or more specifically I think what we’re talking about here, a speculation sales tax,” Whitney said at the hearing.
Illinois isn’t alone in wanting to tax traders. European lawmakers have discussed the idea, as have both Democratic candidates for U.S. president. Hillary Clinton’s proposal isn’t a levy on all trades, but penalizes traders who repeatedly submit and then retract their orders. Bernie Sanders wants a financial transaction tax akin to what’s being discussed in Illinois.
The state’s lawmakers are trying to raise money wherever they can. Illinois has been without a budget for 11 months amid a standoff between Governor Bruce Rauner, a first-term Republican, and the Democratic-led legislature. The state is poised to end the fiscal year on June 30 with a $6.2 billion shortfall, according to the Illinois comptroller, and already has $6.8 billion of unpaid bills.
Time is running out before a solution gets harder to pass. Lawmakers have until May 31 to approve any legislation by a majority vote. If that deadline is missed, for the rest of the year it’ll take approval from three-fifths of the General Assembly to pass any law that can take effect before June 1 of next year.
The Illinois proposal would impose a tax of $1 per contract for transactions where an agriculture product is the underlying commodity and $2 per contract for everything else, including futures and options. The bill exempts trades in retirement accounts and those involving a mutual fund.
Regarding the tax’s effect on trading costs, “this is an 800 percent increase on the traders that trade on our exchange today,” Duffy said. “Would they move their business? Absolutely.”
Duffy said CME has the flexibility to leave the state, skirting the tax. CyrusOne Inc. recently agreed to buy the company’s primary data center just outside Chicago -- the facility where the exchange in essence now lives. CME is now allowed to use any of CyrusOne’s data centers. “If we need to leave Illinois because of any irrational decisions coming out of the state legislature that could affect our business, we have 29 data centers to choose from,” he said.