Myth: The proposed financial transaction tax (FTT) would generate billions in annual revenue and end the fiscal crisis in Illinois
Fact: You cannot tax what is not there. First, imposing such a tax will chase business to other jurisdictions. So the estimates being given on current volume levels will not come to fruition. Second, if our customers choose to leave Illinois, CME Group will follow, taking more than 100,000 jobs tied to the trading industry and the $50 million we currently pay in annual taxes to another state. In short, there will not be a financial industry in Illinois left to tax, and the state will be even deeper in the hole.
Myth: The proposed tax is not large enough to force CME Group and its customers to leave Illinois
Fact: In its current proposed form, the FTT legislation would increase costs by up to 800% on some CME Group products. That is an astronomical increase for a customer of any business or industry. If this legislation becomes law, customers will take their business out of Chicago, which would force CME Group to leave as well.
Myth: It would be difficult for Chicago-based financial exchanges to leave Illinois
Fact: While the exchange will not be taxed directly, a tax that drives away all our customers will impact CME Group dramatically. An FTT will force our customers to seek other markets and our competitors’ products, which would obliterate our business.
Myth: This tax only affects people in the finance industry, not the average person
Fact: The FTT will have a huge impact on consumers and businesses. Farmers, ranchers and energy companies use our markets to keep prices stable and hedge risks. If their costs suddenly increase, they will raise prices. That means higher gas prices and higher grocery bills for Illinois families.
Myth: Financial transaction taxes exist in other places. There is no reason it would not work in Illinois
Fact: Almost all of the transaction taxes frequently referenced are in the equities market, which operates much differently than the derivatives market. The few FTTs that have been imposed on derivatives have failed miserably. For example, India, Sweden, Canada and Italy have all lost money, and essentially their financial markets, after trying to tax financial transactions. Almost all EU countries have now abandoned negotiations on an FTT, after they realized the negative economic implications. It is a bad idea that does not work in other countries, and it will not work in Illinois.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
