Opening Statements of Committee Members


Prepared Testimony of Subcommittee Chairman Rod Grams (R-MN)

Hearing on Fees Collected Under the Securities Act of 1933 and
the Securities Exchange Act of 1934

10:00 a.m., Wednesday, March 24, 1999

The Subcommittee will come to order.

This morning the Subcommittee on Securities is meeting to receive testimony on and consider the effects of the excessive fees collected under the federal securities laws and their impact on the financial markets and the economy as a whole. Since their enactment in the 1930s, Section 6(b) of the Securities Act of 1933 and Section 31 of the Securities Exchange Act of 1934 have authorized the assessment of fees against securities registrations and transactions on the securities exchanges. For most of their existence, these fees have remained consistent with their intended and appropriate purpose -- to reimburse the government for the costs of the Securities and Exchange Commission (SEC) regulation. It is encouraging that all the witnesses this morning have noted in their written testimony that they support fully funding the SEC -- they just don't want to do it five times a year.

Since 1983, these fees have risen to a level which has surpassed the annual SEC budget, thus making the agency a net contributor to the federal budget. Although the National Securities Markets Improvement Act of 1996 was a good first step to a long-term solution, work still remains to be done.

To illustrate just how excessive these fees have become, the SEC requested $360.8 million for fiscal year 2000. Collections of Sec. 6(b) and Sec. 31 fees in fiscal year 2000 are estimated to exceed $1.5 billion -- and if history repeats itself, that actual amount will likely grow. If these amounts are in the ball park, the Federal government collects nearly 5 times the SEC budget in user fees. Normally, this practice would be disturbing. However, in a time of budget surpluses, it is incomprehensible that we would continue this back door tax on capital formation and investment.

Although critics will deride proposals to reduce these collections as tax breaks for Wall Street, the facts don't support his assertion. That is because Wall Street firms pay transaction fees only when they are trading for their own account, and don't pay the registration fees on securities they underwrite at all.

The fact is, every investor in America is paying these back door taxes. When a young couple saves for their child's college education, they pay this tax. When a retiree invests his or her retirement in the market, they pay this tax. When a pension

fund invests its capital in the market, the individuals participants in the plan pay the tax indirectly through lost capital. And this example only covers transaction fees.

When Sec. 6(b) fees are also considered, the impact is even more dynamic to the economy, because excessive registration fees remove capital from the economy before it has had a chance to grow. If the nearly $1 billion in collections were allowed to be used by American business rather than being sent to Washington, its anyone's guess how great an impact it could have. How many jobs, how many businesses, how much economic growth could American business provide annually by leveraging this money? $2 billion? $5 billion? $10 billion? Clearly, reducing the barriers to economic growth must continue to be a goal and reducing these fees is a good first step to reducing the cost of economic growth.

I look forward to working with the panelists and other interested parties to find a workable solution which ensures reliable funding for the SEC while reducing the burden on American investors and businesses.



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