But according to the Huffington Post’s Ryan Grim and Zach Carter, the plan may include one interesting facet: a new tax treatment for derivatives, the credit instruments that were at the epicenter of the 2008 financial crisis. And Camp may be proposing the idea out of spite at CEOs who supported new revenue during negotiations over the so-called “fiscal cliff”:
One Republican operative told HuffPost that Camp’s bill is political payback for the CEOs collaborating with the Fix the Debt coalition, which worked with corporate chiefs who had pressured Republicans to accept tax increases as part of a deal to avert the so-called fiscal cliff at the close of 2012. […]
Camp’s bill would establish a new tax regime for derivatives, requiring banks to declare the fair market value of the products at the end of each year. Any increase in value would be considered corporate income, subject to taxation. It’s a more aggressive tax treatment than Wall Street enjoys for either derivatives or for trading in more traditional securities.
Under Camp’s plan, banks would have to pay taxes on the increase in value of their derivatives, treating the increase as income; it’s a more efficient way of taxing profits than the current, convoluted system. “It’s a pretty bold step and I think this idea is sensible,” said Steve Rosenthal of the Tax Policy Center. The current system has “no basis in the reality of economics,” said tax lawyer David Miller. “As a result, sophisticated taxpayers are free to choose a tax treatment that minimizes their taxes.”
Members of the financial services industry are, predictably, freaking out about the proposal: “It doesn’t make any sense,” said one trader. The derivatives market, which is still largely unregulated, totals about $639 trillion.
Camp’s bill also preserves an important provision that prevents homeowners from having to pay a huge tax bill when they receive a mortgage modification. The provision was temporarily extended recently, and would be made permanent under Camp’s plan.