La Salle Street titans slam proposed transaction tax on financial exchanges
The titans of La Salle Street warned Monday they would pick up stakes and leave Chicago if the City Council imposes a financial transaction tax to chip away at a $1.25 billion budget shortfall in 2021.
Terry Duffy, chairman and CEO of the CME Group, and Ed Tilly, chairman, president and CEO of Cboe Global Markets, shot down the so-called “La Salle Street tax” prohibited by state and federal law but long championed by the Chicago Teachers Union and the Grassroots Collaborative.
Testifying before a City Council Finance Committee once chaired by his grandfather, Duffy called that tax a “path to fiscal disaster” for Chicago.
That’s because as a global electronic financial services company, the CME is “no longer four walls with a trading floor.” It no longer owns any real estate in Chicago. It leases offices that can be moved out of the city at the flip of a switch.
“We also lease our data center in Aurora from Cyrus One, which has 30 data centers located all over the country. … We have the ability to be housed in any one of those 30 data centers. In addition, a number of states throughout the country have offered us incentives to move our company with the clear understanding of what the benefits could be to the residents of their states if CME Group were to relocate to their state,” Duffy said.
“We’re not talking about an idle threat. In response to the proposed financial transaction tax in New Jersey, the New York Stock Exchange and NASDAQ announced plans to move their trading out of New Jersey and to back-up data centers in Chicago. That’s just to illustrate how quickly they can do so.”
Although it may look like a tantalizing silver bullet to the city’s financial woes, a transaction tax would “cost consumers far more than it could ever raise in revenue,” Duffy argued. The costs of the tax would be passed along, and consumers “will have to pay more for everything from food to gas to mortgages,” he said.
Tilly agreed a transaction tax would “harm investors and markets in dramatic ways,” largely because it would be “shouldered by Main Street investors” and “passed through to the individuals on each trade,” he said.
“We have seen in other countries that transaction taxes change behavior and that actual revenues fall far short of projected revenue. Indeed, extra costs imposed on investors and traders will cause them to trade less and at worse prices,” Tilly added.
Tilly said the business of processing and executing trades is highly portable, and competition is fierce between exchanges from different states and countries.
“Brokerages have fiduciary and regulatory obligations to customers and seek to execute trades at the lowest possible prices. An exchange subject to an incremental tax, however small, could lose all or most of its business to market centers not subject to such tax located in other jurisdictions,” Tilly said.
“Thus, a locally imposed transaction tax will force market operators to move in order to insulate investors from the added cost and, candidly, to avoid dire business consequences.”
Chief Financial Officer Jennie Huang Bennett agreed the exchanges have “high mobility” and could be “picked up and moved out” of Chicago “at a moment’s notice.”
She also shot down another idea touted by progressive aldermen — reinstating the $4-an-employee-per-month head tax proudly eliminated by former Mayor Rahm Emanuel — as a “disincentive to hiring.”
Huang Bennett reiterated what she told the Sun-Times earlier this month: Chicago is likely to put up a temporary casino to get the money rolling in until a permanent casino and entertainment complex can be built.
Several aldermen and trade groups are pushing the city to lift its ban on video gaming and legalize so-called “sweepstakes” machines at for-profit businesses with valid liquor licenses.
The state imposed a 34% tax on that terminal income, with a 5% share going to the city.
“This could, in theory, generate between $12 million and $15 million in tax revenue for the city. However, as has happened across the state, video gaming has reduced profitability for casinos,” Huang Bennett said.
Ald. Patrick Daley Thompson (11th) didn’t buy that argument.
“We just went to Springfield and changed the structure for a casino in Chicago. We could do the same to increase the amounts for all of the communities. Not just Chicago,” he said.
“That’s gonna help the neighborhoods and the establishments throughout our neighborhoods and throughout our suburbs.”