Oct 27, 2021,12:22pm EDT|283 views Collateral Damage From The Billionaire Tax: Your Option Trades William Baldwin Senior Contributor Investing This delta variant would kill covered calls and risk reduction moves. Senator Ron Wyden of the Finance Committee (Photo by Chip Somodevilla) GETTY IMAGES Do you ever write calls against your stocks in order to generate premium income? Do you buy puts to protect your gains? Enjoy options while you can. These time-honored strategies may be doomed. Trouble comes via U.S. Senator Ron Wyden, a liberal Democrat from Oregon who presides over the Senate Finance Committee. His plan to tax billionaires on their paper gains is now under intense debate. Less visible: his parallel scheme to go after investors who use derivatives, like stock options. The billionaire tax and the derivatives tax are separate pieces of proposed legislation. They have in common the scary concept of “mark-to-market” taxation, under which you owe tax on appreciation even if you haven’t sold an asset. Until recently, extending the income tax to paper gains would have been considered a long shot in Congress. But now, with politicians hungry for revenue to finance social spending, a paper-gain tax of some sort is plausible. A more straightforward revenue source would be a boost in the top tax bracket, but the Democrats are evidently a vote or two shy of what they need for that move. Wyden might or might not succeed with his plan to snatch some of Elon Musk’s and Mark Zuckerberg’s fortunes. But, as pressure builds for tax hikes, it would be easy to nail derivatives players. Options and futures look like games that rich people play. Alas, the proposed crackdown on options hits not just plutocrats but moderately prosperous types saving for retirement.
Well, MTM tax accounting that we have enjoyed in the futures markets might be coming to an end. There will likely be the asymmetric taxation just like securities going forward (tax all the gains, disallow most of the losses as an offset). This is already approved in the Ways and Means Committee bill written by representative Richard Neal.
The guy looks exactly like the bum that I saw every morning outside Penn Station when I was going to work. I guess those quarters added up after a while... (No content here; move along.)
First off, as mentioned it looks like the unrealized gain tax is dead. But this second tax makes even less sense if it's supposed to raise revenue. It would only accelerate the taxation of options held across Dec 31st, and since the vast majority of options are relatively short term and thus realized quickly, it wouldn't actually raise any additional revenue after the first year. I feel like this article isn't telling the whole story here, congressmen play fast and loose with facts but the budget scorers don't and they wouldn't score this doing much of anything.