Congress’ About-Face On Stock Trading Ban Hurts Americans’ Trust In Government

There has been, and continues to be, a growing concern over congressional members practice of buying and selling individual stocks. This concern is predicated on the idea that members of Congress, especially those who serve on committees, may have an unfair advantage when it comes to picking winners. More on that in a moment.

Although this conflict of interest may not be illegal per se, it does present an optics problem for the 200 plus year-old institution. Buying and selling stocks pits one individual against another. For example, one person wants to buy a stock, believing it will rise in value while another, the seller, believes it will decline. Of course, only one will be correct.

While existing laws prohibit insider trading, or trading stocks on non-public information, proving it is another matter. Recent public opinion polls indicate that as much as 80% of Americans support banning members of Congress from trading stocks. Moreover, this number is consistent among Democrats, Republicans, and independents.

How widespread is the issue? It has been reported that nearly 20% of congressional members are buying and selling stocks where there may be a conflict of interest. For example, let’s say a lawmaker who serves on the Energy and Commerce Committee buys a few green energy stocks just prior to introducing legislation that would favor these types of companies. If the legislation became law, the member could receive a nice profit.

Clearly, this is a conflict of interest. Again, this type of situation exists in just under 20% of the institution’s 535 members.

Despite an overwhelming majority of Americans who support such a ban, many members of Congress are lukewarm to the idea. After resisting it earlier this year, House Speaker Nancy Pelosi (D-Calif.) said negotiations were going well and indicated that a bill would be brought to the floor for a vote soon. More recently, however, House Majority Leader Steny Hoyer (D-Md.) commented that there is not enough time for a vote before the midterm recess. So, the issue has been shelved for now.

Here is a summary of a bill, named the Bipartisan Ban on Congressional Stock Ownership Act of 2022, introduced by Senator Elizabeth Warren (D-Mass.) this past February .

This bill prohibits Members of Congress and their spouses from owning or trading stocks, bonds, commodities, futures, or any other form of security. Each current Member must divest within 180 days after the bill is enacted and each new Member must divest within 180 days after becoming a Member. However, Members and their spouses have 5 years to divest from specified complex investment vehicles. The bill does not apply to certain investments, such as investments in widely held investment funds that are diversified and do not present a conflict of interest and investments held in government employee retirement plans.

A Member or spouse who violates the bill may be subject to a fine of up to $50,000 for each violation. The bill permits a Member or spouse who is required to divest property under the bill to avoid recognizing gain for income tax purposes from the sale of that property to the extent that the Member or spouse purchases permitted bonds or diversified investment funds within 60 days of the divestiture.

As you can see, this bill would severely restrict the ability of congressional lawmakers to profit from trading stocks and other securities. Some members suggest this type of restriction would reduce the number of qualified candidates who might otherwise run for office. Perhaps. But it would also prevent members from profiting from legislation that they, or a colleague might introduce. Similar bills have been introduced, but it appears there will not be a vote until after November, and perhaps not until 2023.

According to Pew Research Center, public trust in the federal government is near an all-time low. As of June 6, 2022, 29% of Democrats and Democrat-leaning independents said they trust government always or most of the time, while only 9% of Republicans shared this view. Ignoring a stock trading bill with such widespread popularity will only further erode this trust.

So, members of Congress appeared to be ready to vote on a bill, until they weren’t. I suppose that’s just politics, but it’s also not in the best interest of the country. Perhaps Congress should adopt a fiduciary standard? Perhaps we need lawmakers who will vote for what’s best for America? Perhaps, but I’m not holding my breath.