As most of Washington spent the end of 2009 focused on health care legislation, some members of Congress were busy floating a misguided proposal aimed at the heart of our financial markets: a new tax on securities transactions.

The populist appeal of such a tax is understandable — it’s easy to score points by bashing Wall Street these days. Yet beyond political posturing, the proposal represents a genuine threat to our still recovering financial system. The negative implications of a transaction tax would ripple throughout the economy, harming average investors and the very companies being counted on to create jobs.

So far the idea is little more than a trial balloon. It should be shot down — quickly.

Give its Congressional authors credit: Their proposal is cleverly packaged, with one iteration entitled the Let Wall Street Pay for the Restoration of Main Street Act. What this bill ignores,...