A joint Senate Finance Committee and House Ways and Means Committee hearing on tax reform and the tax treatment of financial products on Tuesday prompted a Warren Buffett quote from a senator and a lecture on Ptolemy’s geocentric worldview from a witness, both in the service of finding ways to reform the tax code so as to increase tax revenue while not constricting the capital markets.
Chairing the session on the tax treatment of financial products, Sen. Max Baucus, D-Mont. (left), quoted Buffett as saying to his shareholders, “No financial instrument is evil per se; it’s just that some variations have far more potential for mischief than others,” then said this potential for mischief was “one of the reasons we are holding this joint hearing.”
Another reason is that the derivatives market has grown hugely in both the U.S.–Baucus put the notional value of derivatives at $230 trillion–and that a lack of transparency around many financial instruments helped cause the financial crisis. Furthermore, Baucus said “financial advisors have created a complex web of new products that mix debt, equity and derivatives. The only purpose of some of these new products is to avoid taxes, or at least defer taxes, which is tantamount to an interest-free loan.”
Ways and Means Chairman Dave Camp, R-Mich., expressed the hope that a report published for the hearing by Joint Committee on Taxation on tax reform and financial products would “help demystify much of the murkiness” that surrounds financial products while highlighting the complexity of tax rules around these products. Camp said that he was “encouraged” by work done on the issue by the tax section of the American Bar Association, and expressed hope that “others will add their voices to the discussion.”