Thirty-six members of Congress came out against a proposed tax on stock and derivatives trading, warning that it would drive up unemployment and undercut a shaky economic recovery in the U.S.

Charging investors for trading stocks, futures, options and other instruments would also drive up the cost of credit and private investment for both businesses and governments, according to a Dec. 15 letter sent by the 36 members, a copy of which was seen by Dow Jones Newswires.

The letter marks the latest opposition to an early December proposal by Rep. Peter DeFazio, (D., Ore.), who introduced the transaction-tax idea as one way to raise money for job creation and paying down the federal budget deficit.

"In reality, it would be a tax on all investment and savings vehicles because mutual funds and money market fund transactions are, by definition, purchases and sales of securities and bonds," wrote the members of Congress in the letter.

DeFazio has said the proposal would exempt pension funds, mutual funds, education and health savings accounts, along with the first $100,000 of transactions annually. But critics assert it would wind up hitting all investors.

Estimating the tax at an annual $150 billion, the letter's authors said it would raise the cost of investing in the U.S., depress shares of American companies and drive investors to offshore markets.

Authors of the letter included Michael E. McMahon (D., N.Y.), Carolyn B. Maloney (D., N.Y.), Debbie Halvorson (D., Ill.) and Luis Gutierrez (D., Ill.), representing the nation's financial capital as well as Illinois, which is home to the biggest futures exchange operator in CME Group Inc. (CME) and the busiest U.S. options mart, the Chicago Board Options Exchange.

The transaction-tax idea, first floated by DeFazio in February, has drawn sharp criticism from exchange operators, market participants and academics, and has failed to gain much traction in Washington.

Defazio's bill is seen having little chance of immediate success in the House; a jobs-creation package from House Speaker Nancy Pelosi (D., Calif.) isn't expected to include the tax.

Obama administration officials like Treasury Secretary Timothy Geithner are also seen as cool to the idea of taxing financial transactions. Last month, NYSE Euronext (NYX) Chief Executive Duncan Niederauer said administration officials assured him the idea had been shelved.

Taxing trades still has the support of Sen. Tom Harkin (D., Iowa), who views the idea as a way for Wall Street to repay economic damage done to the country as a whole.

German Chancellor Angela Merkel last week also signaled her support for applying a similar charge to financial transactions in Germany, following a U.K. move to tax bankers' bonuses.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com
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