By Bernie Becker - 01/24/13 11:39 PM EST
Camp’s plan would revamp, among other things, how frequently derivatives are valued for tax purposes, how hedged risks are treated on the tax side and rules for how securities can be reacquired.
And the draft underscores that policymakers, who already face stark partisan differences on taxes, also must tackle dense technical challenges in their attempts to overhaul a code that stretches for 4 million words. Camp has vowed to pass a tax reform measure out of his committee this year.
“The tax code played a role in the financial crisis,” Sage Eastman, a spokesman for Camp, told reporters. “And this is an attempt to go in...and hold it accountable for the taxpayers of America."
Ways and Means is inviting business groups and stakeholders to comment on the draft outline, and to weigh in on issues like how to value derivatives in the market.
Republicans on the committee last released a draft plan in October 2011, which called for shielding almost all of a corporation’s offshore income from U.S. taxation.
Several of the proposals in Camp’s outline grew out of a 2011 hearing that Ways and Means and the Senate Finance Committee, chaired by Sen. Max Baucus (D-Mont.), held on the tax treatment of financial instruments.
Under the new proposals, taxpayers trading in the derivatives market would have to evaluate their holdings against market value at the end of each year, creating an annual gain or loss for tax purposes.
That sort of system – called mark-to-market accounting – would limit gaming of derivatives while leaving smaller investors alone, Camp’s draft says.
The draft proposal also forces investments that reduce risk against another position – known as hedges – to be treated the same way for accounting and tax purposes, and also overhauls the “wash rule.” That rule seeks to keep taxpayers from immediately buying back a security, but currently does not apply to close relatives like spouses or children – a loophole the draft seeks to close.
Rep. Sandy Levin (Mich.), the top Democrat and Ways and Means and a frequent sparring partner with Camp over tax issues, said the framework had “interesting ideas” that should be looked into.
“This underlines the need for us to act on a bipartisan basis to raise revenues and close loopholes as we seek further deficit reduction through a balanced package of spending cuts and additional revenues,” Levin said in a statement.
Camp and Baucus, the Finance Committee chairman, have both called for overhauling the individual and corporate codes.
But Democrats and Republicans in Washington have jousted over taxes for years, and those arguments show no signs of stopping as the White House and Congress offer different prescriptions on deficits and the economy.
As Levin hinted at in his statement, Democrats, following the recent fiscal cliff deal that raised some $630 billion in revenues, want more tax increases in future fiscal negotiations, possibly from closing tax breaks for the rich.
But Republicans have said the fiscal cliff revenues were the last tax increase they will consent to, and want to strip the code of tax preferences only to pay for lower rates.
Camp had previously called for lowering the top corporate and individual rate to 25 percent. But with the top individual rate moving north to 39.6 percent because of the fiscal cliff deal, Camp has said he is reevaluating how low the top rate can go.
And Camp’s latest draft also shows that, for officials to come together to reform the tax code, the discussions will also have to broaden past the current talk over how to use the revenue gained from scrapping tax deductions and credits.
“There are areas that are a lot less complex, and might be more controversial,” said Eastman, Camp’s spokesman.