* House's top Republican tax writer seeks tax code revamp
* Latest proposal tackles derivatives, mark to market
* Crackdown on 'wash sales' eyed by Ways & Means chairman
By Kim Dixon
WASHINGTON, Jan 24 The Republican head of the
U.S. House of Representatives' tax-writing panel unveiled on
Thursday options to revamp the tax treatment of derivatives and
other financial instruments amid criticism the current law
permits the system to be gamed.
The discussion draft comes from House Ways and Means
Committee Chairman Dave Camp, who has been exploring for more
than a year a tax code overhaul - a politically daunting project
made more so by deep fiscal policy divisions in Congress.
Tax rules for financial instruments "are inconsistent with
each other and have no basis in the reality of economics," said
David Miller, a tax lawyer at the Cadwalader law firm, who also
teaches derivatives taxation at Columbia University Law School.
"As a result, sophisticated taxpayers are free to choose a
tax treatment that minimizes their taxes," he added.
Camp's draft lays out options for altering the tax treatment
of financial products such as options and futures contracts and
One proposal would require marking most derivatives to fair
market value at year-end, triggering recognition of gains or
losses. Mark-to-market rules would not apply to end-users, such
as airlines hedging the price of jet fuel.
Another Camp option would tighten "wash sale" rules intended
to prevent an abusive strategy that involves gaining a tax
deduction by selling a security at a tax-deductible loss and
then immediately re-buying the same or a similar security.
More broadly, House Republicans wants to slash the top
corporate tax rate to 25 percent from 35 percent and simplify
the loophole-riddled tax code. The United States has one of the
steepest corporate tax rates in the world.
Most companies do not pay the top rate after deductions and
other tax breaks. But both parties and President Barack Obama
back a corporate tax rate cut, although they disagree on how
deep it should be.
Several industry officials did not have immediate comment,
but commodities dealers in particular are likely to fight hard
against any changes related to a favorable tax treatment known
as 60-40 rules, which the industry has enjoyed since 1981.
HOUSE, SENATE SIZING UP CHANGES
Camp's House panel, along with the U.S. Senate Finance
Committee, held a joint hearing on financial products in late
2011, exploring the taxation of stocks, bonds and derivatives.
The Camp proposals taken together could raise or lose
government revenue, panel officials said, depending on how other
parts of the tax code interact with the changes.
The financial crisis that led to worldwide recession in late
2007 was exacerbated by the tax treatment of complex financial
products, aides said.
"We want to make sure Wall Street knows what the rules are
and that the American people know they are playing those rules,"
said Sage Eastman, a policy adviser to Camp.
The proposal tries to tackle abuses in the tax code due to
the disparate treatment of debt versus equity, often identified
by tax experts as a problem. Debt interest is tax deductible
while stock dividends are not.
Another Camp idea is to make losses and gains on derivatives
subject to the ordinary individual income tax rate.
The proposal would change the "60-40" rule that applies to a
limited number of derivatives contracts, requiring all of the
income to be subject to ordinary tax rates, instead of capital
gains tax rates.
That rule allows dealers to pay a blended tax rates on gains
and losses from trading futures and options.
Obama has proposed a version of this in recent budget
Camp's goal is to slash the ordinary tax rate, now topping
off at 39.6 percent, to as low as 25 percent.
The Camp draft is altogether different from a separate
proposal made this week by two liberal Democrats to tax all