The financial industry has attracted many exceptionally bright people, and that is fine. The problem is that some of them are also exceptionally devious. And when you combine exceptionally bright with exceptionally devious, and also add in weak US Government oversight, you are going to eventually have serious problems with the US economy as a whole, as what happened with the 2008 financial meltdown.
Financial instruments are extremely complex, and get more so every day. The financial people that are involved with creatively designing them are brilliant, and unfortunately some of them are also devious.
And there are many of these financial instruments which have been designed just to take advantage of tax breaks.
For instance, a common one is to obtain a Short-term Ordinary Tax Loss on the front end in combination with a Long-term Capital Gain in the long run. The tax benefits here are twofold. First, the tax loss is taken much earlier than the capital gain is recognized. And second, and more importantly, the ordinary tax loss is taken with a much higher tax benefit rate of as much as 39.6% but the capital gain is taxed at a maximum tax rate of only 20%.
This isn't right.....not even close to being right.
Thus I am in complete agreement with Dave Camp, the Republican head of the US House Ways and Means Committee, when he proposes the following tax loophole closer related to financial derivatives: All financial derivatives should be marked to market value at the end of each tax year, with the resultant change in market value being treated for US federal income tax purposes as ordinary gain or ordinary loss in that year.
And there are many other tax loophole closers he recommends related to financial derivatives and other financial products included in his Draft for Discussion on Financial Products. I agree with nearly all of them.
I don't know if the CBO has scored this Draft Discussion yet, but I am certain that the US Government Tax Revenues raised from it over the next ten years are truly monumental.
We couldn't be further apart on most economic issues, but what Camp and the House Ways and Means Committee he chairs has done here is exceptional work and they deserve a lot of gratitude from the American people for this.
Closing these egregious tax loopholes related to financial derivatives is a much fairer way to reduce the US Debt then to reduce either
the much needed US government social safety net in these times of
continuing high unemployment and high underemployment or the wise US
Government investments in research, education and energy.
