Obama Proposes New Taxes on Option Dealers http://www.bloomberg.com/apps/news?pid=20601087&sid=aGk9tTpIe_0g&refer=home The special law for options dealers, enacted in 1981 at the behest of then-Chicago Congressman Dan Rostenkowski, lets them pay a blend of capital gains and ordinary tax rates on their income. It works this way: 60 cents of each dollar earned by an options dealer is taxed at the 15 percent capital gains rate while the remaining 40 cents is taxable at ordinary rates as high as 35 percent. Combined, the effective tax rate is 23 percent. Here's the full text from the Treasury release: REQUIRE ORDINARY TREATMENT FOR CERTAIN DEALERS OF EQUITY OPTIONS AND COMMODITIES Current Law Under current law, commodities dealers (within the meaning of section 1402(i)(2)(B)), commodities derivatives dealers (within the meaning of section 1221(b)(1)(A)), dealers in securities (within the meaning of section 475(c)(1)) and options dealers (within the meaning of section 1256(g)(8)), treat the income from certain of their day-to-day dealer activities as giving rise to capital gain. Under section 1256, these dealers treat 60 percent of their income (or loss) from their dealer activities as long-term capital gain (or loss) and 40 percent of their income (or loss) from their dealer activities as short-term capital gain (or loss). Dealers in other types of property generally treat the income from their day-to-day dealer activities as giving rise to ordinary income. Reasons for Change There is no reason to treat dealers in commodities, commodities derivatives dealers, dealers in securities and dealers in equity options differently than dealers in other types of property. Dealers earn their income from their day-to-day dealing activities and should be taxed at ordinary rates. Proposal The proposal would require commodities derivatives dealers, dealers in securities and dealers in equity options and commodities and to treat the income from their day-to-day dealer activities as ordinary in character, not capital. The proposal would be effective for taxable years beginning after the date of enactment. http://www.treas.gov/offices/tax-policy/library/grnbk09.pdf On the surface, it doesn't sound like a full repeal of IRC 1256 (which would affect every futures and forex trader in the US). Certainly something to keep a very close eye on just in case they expand the reach of this move.