Senate Retreats After Brief Assault on 60/40 Rule

WASHINGTON (HedgeWorld.com)--The U.S. Senate passed a package of amendments to its version of the Jobs and Growth Tax Relief Reconciliation Act of 2003 Tuesday evening, and one such amendment deleted a revenue enhancement measure that included the 60/40 rule, added to the bill last week, Previous HedgeWorld Story.

A spokeswoman for Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee and floor manager of the bill, said yesterday "it looks more than likely that a lot of the provisions including [60/40 repeal] will not be in the final bill." The spokeswoman, Jill Kozeny, stressed that the bill is in "a pretty fluid situation" as Mr. Grassley negotiates a conference agreement with Rep. Bill Thomas (R-Calif.), chairman of the House of Representatives' Ways and Means Committee.

There has been some speculation by knowledgeable parties that the repeal provision was inserted originally with the idea that it would affect only dealers. Only over the weekend (on this theory) did the drafters of this clause come to realize that they had overshot the mark, in that the repeal would have the effect of increasing taxes for the futures/options investment community quite generally and that lawmakers would face opposition from that community if they pressed the point.

A related dispute broke out Tuesday night over the issue of the size of the cost to the Treasury from the dividend tax cut element of the bill. The Senate has "pay-as-you-go" rules, which require that the bill be explicit about scoring such costs and it was in hopes of keeping them down that the 60/40-rule repeal was attempted.

Republicans said that they had discovered that the elimination of the dividend tax would be less costly, by US$70 billion, than they had thought and sought to correct this. Democrats opposed that amendment and Mr. Grassley posted a statement on the finance committee's web site.

"[T]he Republican side tried to amend the bill to correct this error and cut the cost by US$70 billion, but the Democrats blocked our efforts... Some Democrats apparently don't care about the policy or the cost. They just want to exploit a mistake for political gain."

CFaille@HedgeWorld.com

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