Thank you Chairman Baucus, and thanks to all of you for joining us for the second joint hearing this year of the House Ways and Means Committee and Senate Finance Committee. Having served on Ways and Means for a number of years, I will say that holding one, let alone two, joint hearings with these two committees is highly unusual and reflects the deep interest Chairman Baucus and I have in the subject of tax reform.
We are here today to explore the taxation of financial products and the report on that topic prepared by the staff of the Joint Committee on Taxation, which was requested by Chairman Baucus and me earlier this year.
The JCT report provides two critically needed tools. First, the report is helpful in demystifying much of the murkiness surrounding financial products. Today’s marketplace is a veritable buffet of products that can result in different tax or financial accounting treatment of economically similar products, including debt, equity, mixtures of the two, and financial derivatives such as options, futures and forward contracts, and swaps.
Second, the report also highlights the complexity of tax rules in this area. In part, this reflects the inherent variety of the products. But this complexity has been further exacerbated by the tendency of Congress to enact tax legislation affecting a particular financial product without evaluating whether or not other approaches would provide more uniformity (and simplicity) to the taxation of existing and future financial products.
A greater understanding of how the tax treatment of these products influences their use and affects the complexity of the tax code is sorely needed, and I look forward to the insight that our witnesses will offer on this issue.
Over the years, there have been few proposals to reform the taxation of financial products on a comprehensive basis. In addition to the Joint Committee report, I am encouraged by some of the information recently shared by the Tax Section of the American Bar Association in this area. The ABA report is one perspective, and I hope others will add their voices to the discussion.
Gaining a better understanding of these products is imperative if we are to enact tax reform that combines needed flexibility in the financial markets with certainty and predictability in the tax code. I look forward to Mr. Barthold’s testimony on the JCT report and to the testimony of our other witnesses who are adding their expertise to today’s discussion. Thank you for being here.