Congress, though bitterly divided, will have to decide on the Bush tax cuts, says Robert Green, although no other tax or financial reforms are likely to pass until after the 2012 elections.
My guest today is Robert Green, and we're talking about tax reform. So Robert, what do traders need to be concerned about in 2012 in terms of taxes?
The Bush tax cuts, we have heard it for 12 years now, but they are set to expire at the end of 2012. They have already been punted for two years, from the end of 2010 in the lame duck session. It is doubtful there will be any settlement on this issue until after the election.
Democrats are insistent on letting them lapse for the rich. Republicans want to make them permanent for everyone. There is no common ground. They will campaign and duke it out on this issue for the elections.
So, it has to be decided in the lame duck session, because the next Congress doesn't sit until January 2013. This Congress will decide the Bush tax cuts, but they won't decide tax reform.
All right, now what about Dodd-Frank? What do we know about that in terms of how it is affecting this year as well?
Dodd-Frank was passed by the Democrats; the Republicans didn't really want it, but it is the law of the land. It is rolling out slowly.
The Volker Rule is starting in July; it makes banks close down their prop trading desks and exit the hedge fund business. Hedge funds have really been hurt last year with performance; they are downsizing.
The landscape of the trading business has changed quite a bit. With all those prop trading desks closing, hedge funds scaled down-everyone chasing the same trade-it has thrown a monkey wrench into the daytrading business, which will be rejuvenated with some of these traders coming into it. But Dodd-Frank is not really threatening daytrading.
There is no major change with high-frequency trading rules, with margin rules, so I don't see Dodd-Frank as a big threat for traders.
Tax reform is a big issue which will be settled in 2013. There is no way you can do tax reform before the election; they are too far apart.
Democrats want closing of all the loopholes (all the lobbyists would be up in arms), with a little rate reduction. Republicans want to close most loopholes, but a huge reduction in rates. Democrats think that that's a tax cut on the rich.
There is no tax reform until after the election, and there is no tax reform in the lame duck session because how can a lame duck session pass major tax reform? You must wait until the next Congress.
So that is how I see things: Bush era tax cuts for campaigning, tax reform in the next Congress, Dodd-Frank really hurting Wall Street, but not hurting traders.
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