Today, Ways and Means Committee Chairman Dave Camp (R-MI) released a financial products discussion draft as part of the Committee's broader effort on comprehensive tax reform that significantly lowers rates. The proposal seeks to modernize tax rules to minimize Wall Street's ability to hide and disguise potentially significant risks through the abuse of derivatives and other novel financial products -- an activity that was a contributing factor to the 2008 financial crisis. The discussion draft also outlines changes to tax rules designed to provide greater simplicity and uniformity.
The Ways and Means Committee held 20 separate hearings on comprehensive tax reform in the 112th Congress and released an international tax reform discussion draft in October 2011. Camp released the new discussion draft on financial products tax reform, in part, as a response to the input and feedback the Committee received during a joint hearing of the Ways and Means Committee and Senate Finance Committee examining the complex relationship between the tax code and financial products.
Commenting on the release of the draft, Camp stated, "The U.S. is a leader in the financial world, but our broken and antiquated tax code has failed to keep up with the rapid pace of financial innovation on Wall Street. The lack of consistent and comprehensive tax policy has also contributed to some corporate scandals and the recent financial crisis that devastated our economy and threatened our standing in the global community. Updating these tax rules to reflect modern developments in financial products will make the code simpler, fairer and more transparent for taxpayers; and it will also help to minimize the potential for abuse that has occurred in the past."
The discussion draft released today reflects what has become a trademark of Camp's approach to tax reform -- an open and transparent process in which stakeholders are encouraged to review and comment on specific legislation prior to formal legislative action.
"If we are to enact tax reform that preserves needed flexibility in the financial markets while ensuring that no one is gaming the system and putting hardworking taxpayers at risk, then we will need the expertise of those who are most familiar with these products. They can identify areas that merit additional attention, and their insight is critical," Camp said.
The discussion draft consolidates several reforms that have been identified as necessary to provide more uniform tax treatment of financial products. Specifically, the discussion draft includes six proposals to:
Provide Uniform Tax Treatment of Financial Derivatives
Simplify Business Hedging Tax Rules
Eliminate "Phantom" Tax Resulting from Debt Restructurings
Harmonize the Tax Treatment of Bonds Traded at a Discount or Premium on the Secondary Market
Increase the Accuracy of Determining Gains and Losses on Sales of Securities
Prevent the Harvesting of Tax Losses on Securities
An overview of the discussion draft along with a detailed summary can be found at the Ways and Means website.