Legislative Updates: June 2013
The DC office for The Options Clearing Corporation (OCC) spent much of the last month focused on the House Ways and Means Committee draft tax proposal. (OCC and the U.S. options exchanges sponsor The Options Industry Council (OIC)).
The office, along with representatives from the exchanges, met with Members of Congress and their staffs about their concerns with the new legislation. Generally, their concerns and comments were well-received, even by the architects of the draft plan, who were apparently not aware of how the proposed changes would impact listed options. (See the April Capitol Call for proposed changes.)
Since they have now met with most of the House Ways and Means Committee members, the focus of the industry representatives has turned to the Senate. The goal is to educate Senate Finance Committee Chairman Max Baucus (D-MT), his staff and other members of the Committee about the options industry’s concerns before any proposal has been completed. Both Baucus and his House counterpart, Dave Camp (R-MI), who chairs the Ways and Means Committee, have said they would like to have bills drafted by the end of 2013. However, history shows the timeline might be longer than that.
Many pundits refer to the Tax Reform Act of 1986 when describing current tax reform efforts, since it was the last time comprehensive reform was enacted and the only full overhaul of the tax code in its entire history. The idea of comprehensive tax reform began with President Ronald Reagan mentioning it in his 1984 State of the Union address. His Treasury Department then spent most of 1984 examining the tax code and creating a reform package for Congress to consider. It was submitted to Congress in May 1985.
Thirty Committee hearings were held in the House, and after a marathon, 16-day markup (debate and rewriting) session, the final version of the Act was passed out of the Ways and Means Committee in December 1985. For its part, the Senate held 36 hearings on various proposals but never introduced formal legislation. Instead, they used the House-passed bill as a vehicle for their own version of tax reform, passing it out of the Senate Finance Committee in May 1986 after a 17-day markup. President Reagan finally signed the Tax Reform Act into law on October 22, 1986.
No legislation in recent memory, including complex laws like Dodd-Frank and the Affordable Care Act, has been the subject of 66 Congressional hearings and 33 days of combined Committee markups. All that effort shows how serious Congress and President Reagan were about comprehensive tax reform.
The bottom line is that comprehensive tax reform is a difficult process. This year, any action on comprehensive tax reform likely will not come until the fall at the earliest, and that would just entail a bill being marked up out of the Ways and Means Committee. Without the strong support of President Obama and Majority Leader Harry Reid (D-NV), the chances of Senate action in the near term are low.
Efforts to enact tax reform in 2013 have already faced significant policy disagreements between the parties and there are several more pressing issues taking up the time and focus of the House and Senate. So, even if both Chambers passed their own versions of tax reform, reconciling the two bills prior to the 2014 campaigns heating up would be difficult. Fortunately, this will also give the options industry more time for its concerns about the legislation to be heard.
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