Should the U.S. allow members of Congress to trade stocks? That question has plagued lawmakers — the people it would most directly impact — for some time.
Many Americans believe that their elected representatives shouldn’t be allowed to trade. Recent data shows that more than 80% of Democrats, Republicans and independent voters support a ban on stock trading. This is likely due to perceived conflicts of interest. If politicians are able to buy and sell stocks, they could be more likely to vote in favor of policies that benefit companies more than their constituents.
It’s an issue that recently brought two very different senators together. In July 2023, Senators Kirsten Gillibrand (D-NY) and Josh Hawley (R-MO) brought forth the Ban Stock Trading for Government Officials Act. Under this bipartisan legislation, members of Congress and senior executive branch officials would be banned from trading and owning stocks. This ban would also extend to their spouses and dependents. Gillibrand has described this proposed stock trading ban as “the most substantive bipartisan effort to date” to increase transparency between elected officials and their constituents.
Representatives such as Patrick McHenry (R-NC) have argued against this type of ban, claiming it would be unfair to members of Congress. It’s true that many elected officials enjoy the benefits of investing. Former House Speaker Nancy Pelosi has become known for her stock trading history. And she is far from the only high-ranking politician to employ successful investing strategies.
Data from Capitol Trades shows that over the past 90 days, Republican House members have made 54 trades. Democratic representatives have filed 48. As evidence of this, a few weeks ago, I reported that members of both parties had offloaded Tesla (NASDAQ:TSLA) stock. Current proposed legislation would have clear impacts on several lawmakers… and their wallets.
Is a Stock Trading Ban for Congress Necessary?
This isn’t the first time discussion has risen of a stock trading ban for elected officials. After all, as the nonpartisan Brookings Institute has argued, such a measure could eliminate conflicts of interest for the people elected to shape and strengthen our economy. But as it turns out, the answer isn’t quite so black and white. Wanting to better understand this complex matter, I spoke to several experts.
Quiver Quantitative is a market analytics platform that tracks the trades made by U.S. politicians. CEO James Kardatzke spoke to InvestorPlace about his company’s findings. He said:
“We’ve been tracking Congressional stock trading for around 3 years now, and it is shocking how often members of Congress not only trade in ways that create clear conflicts of interest, but also seem to prioritize their personal finances over their congressional duties. While there are many members of Congress who abstain from personal trading, there are also many who trade millions of dollars per year, often generating trading profits far in excess of what they receive from their official salary.”
For that reason, Kardatzke isn’t optimistic about the prospect of Congress policing itself via legislation. Experts such as Matt Lewis of The Daily Beast have also speculated that Congress won’t pass any laws to ban its members from trading stocks.
But if these theories are correct, then another important question must be asked: Are there any solutions to this problem?
What Can Be Done?
According to John Rizzo, senior vice president of public affairs at impact agency CLYDE, there are other solutions. Rizzo has worked with multiple U.S. senators and now provides strategic counsel to companies in the financial services space. He suggests:
“Congress could require its members to put their assets in a blind trust for the duration of their service. In this way, a member of Congress could still accumulate long-term wealth through stock investments but be removed from the decision-making process about which trades are made and when.”
Rizzo adds that “another option would be to ban members of Congress from trading stocks within the jurisdiction of the committees on which they sit. Committee work tends to be the venue that exposes Members of Congress and their staff to most non-public information.”
He also raises an argument against an outright ban. As Rizzo sees it, such a policy could pose “downstream consequences,” as it might deter Americans from lower economic brackets from seeking elected office. This comes at a time when it is already difficult for lower-income individuals to mount successful political campaigns, leading to a lack of government representation for America’s working class.
Why a Congressional Stock Trading Ban Makes Sense
However, for the leaders already in power, enacting a stock trading ban might actually be a sound political strategy. John Geer, a professor of political science at Vanderbilt University who oversees the Vanderbilt Project on Unity & American Democracy, spoke to InvestorPlace about the positive implications that could stem from such legislation.
“Almost 80% of Americans wanted members of opposing parties to work together, even if that meant compromising on some partisan values, per last quarter’s Vanderbilt Unity Poll, so the number of bipartisan bills banning individual stock trading would seem to make political and practical sense. These bills offer relatively low-hanging fruit for Members of Congress to take concrete action aimed at restoring faith in the institution, while burnishing their reputations as problem-solvers rather than strictly partisan or self-interested actors”
As Geer highlights, voters want to be assured that their elected representatives are working to serve them, not enriching themselves.
It certainly seems that Congressional members would be wise to consider supporting this ban on stock trading as the next election season approaches. Increasing transparency between voters and representatives will be of crucial importance as the U.S. prepares for a monumental presidential election.
With a lot on the line for both parties, a bipartisan measure that could boost trust among voters is coming at an excellent time. An inability to buy and sell stocks seems like a small price to pay for maintaining the trust of your voting base.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.