One on One: "We have a great opportunity ahead of us …to continue to make more Americans investors"

Rep. Vito Fossella is not afraid to admit he’s a parochial politician.

The Staten Islander, who was elected to the House of Representatives in 1997 following the resignation of fellow Republican Susan Molinari, figures that what helps New York City and Wall Street also helps Main Street.

Mr. Fossella is continuing a family tradition, albeit in a different party. His great-grandfather, Rep. James O’Leary, represented Staten Island in Congress in the 1930s as a Democrat, and he voted to establish the Social Security system.

The congressman uses that when selling the idea of Social Security reform to save the system. During his 1997 race for the House seat, he pushed for Social Security reform along with tax reductions, improving education and fighting crime.

As a representative of New York City, Mr. Fossella moved quickly after joining Congress to work on issues of interest to the financial services industry. His chief mission so far has been to reduce securities transaction fees.

The fees, which must be paid on all securities transactions, were intended to simply cover the cost of regulating the industry, but due to the robust markets of recent years, the fees have far exceeded what is needed to fund the Securities and Exchange Commission.

Mr. Fossella wins high praise from Republican colleague Peter King, who represents nearby Long Island. Rep. King applauds Mr. Fossella’s familiarity with financial services issues.

“Vito will be involved in whatever goes on,” says Mr. King, who is chairman of the domestic monetary goals subcommittee of the newly created Financial Services Committee. And security fee legislation, he says, is “the type of thing that could get done.”

Q With Congress so tightly split between the parties, are you optimistic that much can be done this year?

A We have a great opportunity ahead of us, Congress does, to continue to make more Americans investors.

In light of the recent passage of the Financial Modernization Act to bring the insurance, securities and banking industries into the 21st century, I think we can build upon that success to make as many American investors as possible, to allow as many Americans as possible to create wealth over the short term and long term.

I think the … new Financial Services Committee allows us the opportunity to move in that direction.

Q On what issues do you think Congress could make headway?

A At a minimum, an issue as simple but important as reducing Section 31 fees. There is a tax on every transaction – a fee. The original intent of Section 31 fees was important: to fund operations of the SEC.

The windfall, however, is grossly more than what the SEC needs. It changes by the day, but you’re talking about $1.7 billion in transaction fees. The SEC’s budget is in the area of about $300 million. In effect what’s happened is, there’s an unnecessary tax on capital. That fee or tax is picked up by someone. Usually it’s picked up by the investor.

Q What are you thinking about doing in technology?

A [We need] to ensure more folks are trading over the Internet. Volume is growing tremendously. Are the rules in place reflective of this changing world? I suspect they’re not.

Progress could be made, and Congress could identify shortcomings in current legislation that’s either duplicative or does not take into account how a simple stock transaction over the Internet can be completed.

Q What are some specific Internet areas that need to be addressed?

A The way you disclose documents, explanations, prospectuses – things you have to do in a hard copy. We need legislation to allow all this to be transmitted in cyberspace.

There’s no reason, if you can do it securely and safely in cyberspace, that you should require a hard copy. This has to do with unnecessary documentation, irrelevant rules.

Q Is the Financial Services Committee so big that it will be impossible to get anything through?

A My brief experience is that the more members, the more difficult it is to reach a consensus. But I have a lot of faith in [Chairman] Mike Oxley [R-Ohio]. He’s one heck of a guy. He’s bright. He has the ability to work with both Republicans and Democrats. I think he’ll be able to build a strong record of bipartisan achievement.

Q How does all that fit into your representation of the New York area?

A I also take a parochial view of things that transcend party politics. We want to keep New York City the financial capital of the world. I believe a strong Wall Street is good for Main Street. More and more Americans are becoming investors. More and more people have a vested [interest] in how General Motors [Corp.], Cisco [Systems Inc.], Microsoft [Corp.] are doing. To keep [the] industry alive and well and vibrant helps New York City. It helps Republicans and Democrats.

I think you’ll be getting a lot of support from Democrats in New York City and other areas … that have a strong financial services community. The tax revenues generated from these businesses is vital to the local economy.

Q What are your thoughts about tax cuts?

A I think rate cuts across the board are fairest, perhaps the best way to ensure a growing economy. I’ve sponsored a bill in Congress that calls for rate cuts across the board over a three-year period. I am strongly in favor of tax relief. Rate cuts I support: marriage tax, death tax, capital gains reduction – I’m for that.

Q Will Democrats be able to stop President Bush’s agenda?

A I expect there’s going to be some attempt at that. But I believe with good, honest leadership, with good vision, you can bring folks around. You can maybe get some Democratic support if the argument is made right.

There are some people who are going to vote against every tax cut. But I think George [W.] Bush stressed his ability to work with Republicans and Democrats, which is a great leap when one considers the last eight years. There wasn’t that much of that.

Last year, marriage tax and especially the death tax – we were told that nobody was for that. [Repeal] passed overwhelmingly. The death tax was a clear example where there was a desire to see it passed, by evidence of the vote. But leading up to the vote, pundits said people don’t want death tax elimination.

Q What other upcoming issues will be of interest to the financial industry?

A Issues about mutual fund transactions. More and more Americans are becoming owners of mutual funds. There are ways in which we can modify the rules so folks don’t have to sell to pay a tax bill for capital gains. [Rep.] Jim Saxton [R-N.J.] had a bill. [The legislation would let investors defer paying taxes until they sell.]

Something is moving in that direction. The goal is to have people [be] independent financially, have the freedom to invest and be self-sufficient in the long and short term. You don’t want them to become participants in mutual funds only to be forced to sell because of tax liability.

Q Will Social Security reform come up this year?

A It’s the cornerstone of what Bush ran on. I think we should be moving in that direction. The system is not the same today as when it was created. Unless something is done, coming generations are going to have to pay exorbitant, higher taxes or see a decrease in benefits.

The bottom line is, we want to give Americans the freedom to become investors. The more we empower individuals to do that, the [more the United States] as a whole benefits.

SNAP SHOT

Rep. Vito Fossella, 35, Republican of New York

Education: bachelor of science, Wharton School, University of Pennsylvania; law degree, Fordham University

Elected: U.S. House of Representatives, 1997, with 63% of the vote; member, Financial Services Committee, Energy and Commerce Committee

Previous experience: New York City Council, 1994-97