Gilly’s ‘security tax’ could cost billions

Sen. Kirsten Gillibrand now favors a new charge on Wall Street and investors that could cost billions.

New York’s Democratic junior senator is supporting a securities transaction tax (STT) proposal backed by Sen. Bernie Sanders (I-Vt).

The tax, which has been proposed and defeated several times, has been called a progressive measure. Advocates say the tax is a good idea because it is relatively small and could be spread across a broad investor base.

Recently arguing for the so-called Robin Hood tax, which would add .03 of a percent to every securities trade, she said that “the greatest risk we have to our democracy now is income inequality.”

While that’s only $3 on a $10,000 order that small investors may place directly, the big fund managers that manage our 401(k)s or pensions trade in much larger sizes than that — and those costs can add up quickly.

Say a firm executes 50M shares/day at an average price of $25/share. That’s $1.25B in average notional value traded per day, which means a .03 percent tax results in $375,000 in extra costs per day.

A 2011 study by the Congressional Budget Office found a STT “would raise the cost of financing new investment.”

And the Tax Foundation called Gillibrand’s backing of the financial transaction tax plan “a retread of bad ideas.”

The Tax Foundation warned that a financial transactions tax would “distort asset markets, as types of securities traded more frequently would be taxed much more than assets traded less frequently.” Investors — including 401(k) participants — it adds, would hold on to securities for longer periods to avoid the tax.

However, the senator, in a prepared statement to The Post, said the tax would help the economy grow. It is an idea, she added, “that has worked in other countries.”

Gillibrand contends the STT “is one example of how Congress can ensure that we reward companies that reward work, not hedge funds using highfrequency trading.”

The senator’s embrace of the tax comes as a surprise to some in the securities industry. In 2011 she came to the Street’s defense when she argued, along with other New York lawmakers including Democratic Sen. Charles Schumer, that regulators should reconsider new derivatives rules.

Schumer’s office didn’t respond to repeated requests for comment.