60/40 Tax Treatment Repeal Escapes Inclusion in Health Care Bill.

Discussion in 'Wall St. News' started by PrimeX, Sep 24, 2009.

  1. PrimeX

    PrimeX Guest

    NEW YORK, Sept 23 (Reuters) - A U.S. Treasury plan to end preferential tax treatment for derivatives traders may be losing steam after the so-called 60/40 benefit was excluded from a recent healthcare reform bill, options industry executives said on Wednesday.

    The plan, proposed by the Obama administration earlier this year, was excluded in a bill put forward by Finance Committee Chairman Max Baucus last week. Options industry had speculated that the 60/40 repeal would be included in the bill.

    "We are glad to see that the 60/40 repeal was taken out of the (Max) Baucus healthcare bill, and we are hopeful that it will not make its way into future bills," Ed Boyle, senior vice president of NYSE Euronext (NYX.N) said in an interview. NYSE Euronext owns both the Arca Options and the NYSE Amex Options exchanges.

    Gary Katz, CEO of International Securities Exchange, also said in interview on sidelines of an options conference on Wednesday: "I don't have inside information as to why it wasn't there, but we're pleased that it wasn't."

    The U.S. Treasury 2010 revenue proposals released in May includes a repeal of the 60/40 tax law treatment for futures traders and options market makers, a plan viewed by the industry as driving away market liquidity.

    "There were several bills this year where it could have been included, and one them really was in the healthcare bill, either on the house or the senate side ... so we got over those hurdles," said Susan Milligan, senior vice president of government relations for the Options Clearing Corp.

    Enacted more than 25 years ago, the law treats 60 percent of gains or losses as long-term capital items and the rest as short-term. This allows market makers to pay a blended capital gains/ordinary tax rate of 23 percent of their income instead of up to 35 percent, or 39.6 percent as of 2011.

    Market makers are regulated firms that add liquidity to exchanges, taking the opposite side of customers' buy and sell orders.

    A government official familiar with the proposal said the Obama administration continues to view the current tax treatment as a loophole, abused by those who hold positions for days or even weeks to benefit from the preferential tax treatment.

    "It seems rather rich that individuals are getting this treatment," the official said, asking not to be named.

    While some market players believed the 60/40 tax treatment would not be repealed at least for 2010, Milligan was more cautious.

    "Later this year, I expect the Congress to do another tax bill and 60/40 is one of the potential things they would look at," she said, citing a huge drive for revenue and growing concerns on Capitol Hill about the rising deficit.

    The financial services industry faced a similar challenge in 2003 when the U.S. Senate was on the verge of repealing the provision. But a lobbying campaign by exchanges and derivatives industry groups won a reprieve, arguing that elimination of the 60/40 tax treatment would hurt U.S. markets and investors.

    "(The repeal) is a burden to existing structure. Unfortunately, the one who will pay the tax is the end user," said Edward Tilly, executive vice chairman at the Chicago Board Options Exchange.

    (Reporting by Angela Moon and Jonathan Spicer; Additional reporting by Kim Dixon in Washington, D.C.; Editing by Richard Chang)

  2. Eight


  3. clacy


    Just goes to show how much weight the financial sector has in politics. Also probably a good indicator that a tobin tax or trader tax is unlikely.
  4. Correct.

    Think Hillary and Chuck Shumer and Mayor Bloomberg would allow this to happen to NYC?

    Think again.
  5. Jym


    And wouldn't that law pass if these were actually marketed to the general public more like forex?
  6. Eight


    It would have a better chance of passing but the brokerages would still oppose it based on slippery slope reasoning...