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Friday, February 15, 2013

NY Times: Camp's Financial Derivatives Proposal Is Giant Step Toward Meaningful Tax Reform

New York Times:  One Step Toward Rethinking Taxes, by Floyd Norris:

Tax reform, at least in American politics these days, is generally discussed at only the most abstract level. There is general agreement that it would be nice to lower tax rates while broadening the base by getting rid of loopholes. The latter, of course, are seldom specified in any detail, and are very much in the eye of the beholder.

If real tax change is ever to be adopted, we are going to have to be specific on small things as well as large.

Representative Dave Camp, the Michigan Republican who heads the House Ways and Means Committee, has taken an impressive step in that direction with a proposal to make substantial changes in the taxation of financial instruments. ...

There are many tax-oriented strategies to create differing tax treatments for what are actually offsetting investments. The idea is to have a loss treated as ordinary income, and recognized as soon as possible, while the offsetting gain is delayed and then treated as a long-term capital gain if that is possible.

The Camp proposal would establish a general rule that both arms of an offsetting strategy will be taxed as ordinary income or loss on a mark-to-market basis at the end of each year. So if one position made money while the other lost, they would wash each other out. There would be little reason to enter into many such transactions. And derivatives — except those that businesses use in ways that qualify for hedge accounting — will automatically be marked to market. ...

[T]he Camp proposal may be a start to reaching consensus on some of the details that would be in any successful compromise.

For more on the Camp proposal, see:

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2013/02/ny-times--2.html

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Comments

Reform efforts have been going on for a long time. As long as there are governments
that spend more than they take in and are not willing to raise enough tases to cover their expenditures there cannot be meaningful reform. Has anyone ever thought of not spending more tha they take in ? Let alone ever think of running a surplus.

I remember Greenspan stating , under Clinton, that it was not good to run a surplus.
With this kind of thinking, no matter the reform they will never balance the budget.

Keep taxes simple, easy to understand , and keep them honest, and people will be willing to pay them ....it's really quite simple.....

Posted by: C. R. Geupel | Feb 17, 2013 10:57:20 AM