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Thursday, January 31, 2013

Sanchirico: Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains?

TaxVox Blog:  Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains?, by Chris William Sanchirico (Pennsylvania):

House Ways and Means Committee Chairman Dave Camp (R-MI) has proposed requiring most derivatives investors to pay tax on their annual returns even if they don’t realize their gains by selling their securities. This proposal, which requires investors to mark-to-market the value of financial derivatives, has ramifications far beyond the heady world of high-tech finance. It implicitly challenges our most basic and firmly held beliefs about why we tax investment gains the way we do.

Camp’s plan raises two key questions: First, should mark-to-market be required for all investment assets, not just derivatives? Second, does his proposal fracture one of the main justifications for taxing long term capital gains at roughly half the rate on ordinary income? ... Camp’s proposal is more than food for thought regarding derivatives. It’s a four-course meal for fundamentally rethinking how we tax investment gains.

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Comments

Such a proposal seems idiotic, almost beyond belief.

A fundamental principle of taxation is that gains are taxed upon realization (or in some cases the right to realize such as certain compensation items.) The reasons for rejecting annual mark to market gains or losses on investments are so obvious that it is a waste of electrons to list them here.

Posted by: David R. | Jan 31, 2013 5:15:28 PM