Senate to end preferential tax for commodities?

Quote from Maverick74:

I'll quote this post since smilinsynic has you on ignore.

I'll add that the spirit of the law was not to tax hedgers. The futures markets were born out of the necesity to hedge and lawmakers felt one should not be taxed on any profits incurred from a hedge since the tax would usually be collected from the gain on the product that was being hedged.

Talk about double taxation. Tax an airline on their ticket revenues then tax them when they go to hedge their fuel costs. Yeah, that makes total sense.

By this backass logic, we should also pay capital gains on our car and house insurance if we ever receive a settlement.
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Yes, I do have the Blue Ribbon jabroni on ignore, as I do all fundamentalists, permabulls, permabears, racists, and the mentally unstable. Regarding Pa(b)st, he's 2 out of 5. Not bad.

If lawmakers decided to give futures a special tax status because it could be used as a "hedge", gee, that's poor logic. Anything can be a "hedge"--gold, other currencies, other stocks, options, even certain collectables (so claimed one baseball card collector who collected Nolan Ryan rookie cards).

Short term gains should be taxed short term, and long term gains should be taxed long term. Or make them all the same--my preference.
 
Quote from smilingsynic:

Yes, I do have the Blue Ribbon jabroni on ignore, as I do all fundamentalists, permabulls, permabears, racists, and the mentally unstable. Regarding Pa(b)st, he's 2 out of 5. Not bad.

If lawmakers decided to give futures a special tax status because it could be used as a "hedge", gee, that's poor logic. Anything can be a "hedge"--gold, other currencies, other stocks, options, even certain collectables (so claimed one baseball card collector who collected Nolan Ryan rookie cards).

Short term gains should be taxed short term, and long term gains should be taxed long term. Or make them all the same--my preference.
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Any reason you chose not to respond to his tax example as I believe that exemplifies his point.

Also, those other items you mentioned, other then options, were not created for hedging purposes. Futures contracts were created explicitly to hedge.

Why should a farmer have to pay a tax to protect his crop? Why should an airline have to pay a tax to lock in revenues that are already being taxed? Can you honestly answer these questions?

Yes, I know there is a lot of grey areas and yes there are many that use the futures markets purely for speculation, but as you pointed out, most of them don't make money, so it's a moot point for most of them. But why tax the producers twice?
 
Quote from Maverick74:

Any reason you chose not to respond to his tax example as I believe that exemplifies his point.

Also, those other items you mentioned, other then options, were not created for hedging purposes. Futures contracts were created explicitly to hedge.

Why should a farmer have to pay a tax to protect his crop? Why should an airline have to pay a tax to lock in revenues that are already being taxed? Can you honestly answer these questions?

Yes, I know there is a lot of grey areas and yes there are many that use the futures markets purely for speculation, but as you pointed out, most of them don't make money, so it's a moot point for most of them. But why tax the producers twice?
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Making some distinction between hedgers and speculators would complicate an already complex tax code. Obviously.

How would one be able to prove that something was bought/sold strictly as a hedge?

A quant hedge fund dealing in arbitrage could declare all profits to be tax-free because they were all hedges. If two positions were put on at the same time, which one would be the hedge?

What if a hedger overhedges and makes a profit? How would that person be taxed?

There would be many, many more complications.
 
Quote from smilingsynic:

Making some distinction between hedgers and speculators would complicate an already complex tax code. Obviously.

How would one be able to prove that something was bought/sold strictly as a hedge?

A quant hedge fund dealing in arbitrage could declare all profits to be tax-free because they were all hedges. If two positions were put on at the same time, which one would be the hedge?

What if a hedger overhedges and makes a profit? How would that person be taxed?

There would be many, many more complications.
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No one is saying hedgers should pay no taxes. We are talking about 60/40 here which is only a slight reduction in taxes. I think you are really making this bigger then it is. I would agree with you if 1256 provided hedgers to pay no taxes.

I would personally always error in the favor of avoiding double taxation where possible. Like you said, most futures speculators don't make money, so surely they are not getting a free ride on this.
 
Quote from smilingsynic:

What exactly do traders produce, other than "liquidity"?

In short, trading is a parasitic industry. That is not necessarily a bad thing; it is what it is.

As for the impact of trading to the economy, the sum contributions of trading worldwide to the world economy is zero - minus commissions - minus spread (winners minus losers minus vig).
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Price discovery, more efficient prices, lower volatility. And if you think liquidity is not important, then you are obviously clueless.
 
Quote from Stosh:

I am going to list a few occupations, and would appreciate it if you would tell me which ones you would call "producers"?
Professional athlete, e.g. Tiger Woods.
Congressman
Video game manufacturer
Tobacco farmer
Cosmetic surgeon
Bartender
Maker of fine wine, or single malt.
Yacht manufacturer
Banker
Luxury homebuilder
Maker of counterfeit I.D.'s for illegals
Piano teacher
Professional musician
Sales clerk at cosmetics counter
History professor
Economics professor (unbiased)
Soap opera producer
Unbiased news channel
Coal producer
Ethanol producer
Producer of birth control pills
Border guard
Oil and gas producer
Pizza delivery man
Handgun manufacturer
Gun shop owner
Speculator who takes the other side of a businessman's hedge.

I could go on......just wondering who gets to choose who is productive and who is not?? Stosh
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Nice illustration. Closet socialists might be worth debating if they weren't so clueless about grade school economic issues. Oh yeah, I forgot - they don't teach economics at grade school. No surprise then that the average citizen's grasp of economics is no better than that of a 5 year old - the main difference being the 5 year old *knows* he's ignorant.
 
Quote from Cutten:

Price discovery, more efficient prices, lower volatility. And if you think liquidity is not important, then you are obviously clueless.
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So very true. Most people don't understand that without liquidity, prices would be higher across the board for most items, not to mention the nightmares that business would have with obtaining supplies without disruption.
 
Leaving aside the purpose of traders for now, capital gains taxes are a tax on the fruits from the deployment of savings. Deployed savings = investment. Investment = growing the economic pie.

Taxes on capital gains discourage savings - why would any society, *especially* ours in the US want that?

In a perfect world we would reduce capital gains tax and increase consumption taxes. It is no coincidence that this is a formula followed by many successful countries in the world.

Now as for the role of traders - the decisions of what to produce, how much to produce, when to produce and what raw materials to use are all dictated by that amazing thing called the price mechanism.

If you don't believe in the price mechanism, then .... you are an infidel and should move to Venesuela or where ever it is in the world that they are trying to control price and production by law and committee.

Traders, speculators and producers are all involved in the functioning of the price mechanism. Some make the system smarter by fundamental analysis, some accelerate the process of discovery by following the trend, some keep relative values grounded in reality by arbitrage. Others keep the machinery well oiled with liquidity.

There is an entire cornucopia of trading activity going on out there, of which Woodies CCI and squiggly lines on a screen are but the flea on the hair on the bum of the seal that sits on the tip of the proverbial iceberg.

However most frogs in the well on ET don't seem to appreciate this basic fact.
 
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