Two democratic senators on May 2 introduced legislation that would target what they say are loopholes in the tax code, calling for the measures to be included in tax reform plans less than a week after the White House introduced its one-page tax reform outline.
Senate Finance Committee ranking minority member Ron Wyden, D-Ore., introduced the Modernization of Derivatives Tax Act, which would mark to market a broad definition of derivatives while treating all gain or loss as ordinary in character. Wyden introduced a bill of the same name in May 2016. The proposal would raise almost $16.52 billion in revenue by 2026, according to an April 2016 Joint Committee on Taxation score.
The mark-to-market system for taxing derivatives that Wyden’s bill would create is similar to that in former House Ways and Means Committee Chair Dave Camp’s Tax Reform Act of 2014. Wyden’s bill also addresses several issues raised by the industry in response to Camp’s bill, such as excluding securities lending transactions and derivatives concerning members of the same worldwide affiliated groups.
“This legislation takes aim at a loophole that allows sophisticated investors to artificially lower their tax bills. It also eliminates the ability for these taxpayers to pick and choose what kind of tax they want to pay, and when to pay it. Ending these aggressive tax planning tactics is critical to achieving comprehensive tax reform that benefits all Americans, not just those at the very top,” Wyden said in a statement.
Sen. Tammy Baldwin, D-Wis., meanwhile, reintroduced the Carried Interest Fairness Act, which would tax carried interest income at the same rate as ordinary income. The JCT in 2015 estimated that the bill would raise $15.64 billion between 2016 and 2025.
Baldwin said that as a candidate, President Trump said he wanted to eliminate the carried interest deduction, among other provisions that benefit Wall Street investors, but his administration’s tax reform outline didn’t reinforce those pledges. “With his one-page tax proposal that gives massive tax cuts for millionaires and billionaires, I am afraid President Trump is breaking his promise and is engaging in a classic Washington game of bait-and-switch. He needs to stand by his word to close the carried interest tax loophole and support our legislation,” Baldwin said.
Ways and Means member Sander M. Levin, D-Mich., who reintroduced companion legislation in the House, said the plan offered by the president could actually result in a lower tax rate for fund managers. “President Trump has outlined a tax plan full of giveaways to the wealthiest Americans, but he was silent on fulfilling his campaign promise to close the carried interest loophole,” Levin said in a joint statement with Baldwin.
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