Prepare for the Upcoming Tax Wars

06/16/2011 3:30 pm EST


Robert Green, CPA


Tax expert Robert Green describes potentially significant changes to the US tax legislation and predicts the likely impact on traders and investors.

Well, we're starting to hear a lot more now about the budget and tax reform and what the President has been talking about. Our guest today is Robert Green from Green Trader Tax to talk about what this means for investors and traders. 

So Robert, what have we been hearing, and what are your expectations here with this new budget and tax reform?

No expectations; the sky is the limit!

The President started the first salvo to the great budget and tax debates of the coming year with his budget, the green book. 

You could not expect the President to jump first into the third rail of politics, solving everything, enforcing the Deficit Commission’s findings. He started with his own playbook. His budget is a political platform; and I think that's fair. 

He wants to not extend the Bush tax cuts when they expire in two years. He did lead the country into that consensus in the lame duck session. That's gone. 

Democrats want higher taxes and some spending cuts. Republicans want no new taxes and major spending cuts.

What are the aspects of this that directly affect investors and traders that he may push for here?

Well, the President every year says no 60/40 lower tax rates on futures dealers—not traders, don't be alarmed.

The President for the first time is suggesting a user fee, a small user fee. Some call it a “financial transaction tax” on futures traders to pay for the Commodity Futures Trading Commission (CFTC) expansion called for in Dodd-Frank, which Republicans still consider a bitter pill, and they want to undermine. They do not want the CFTC to be expanded.

NEXT: Big Proposed Changes for the Investing Community


So each one of these clauses will be debated. The other big one for the investment community is the President wants to repeal carried interest tax breaks, which would rock the investment community hedge funds, where managers get a share of the underlying gains at better tax rates than ordinary income.

What kind of difference are we talking about here in terms of what it is now, and what it could be down the road?

Well if tax rates are increased for the rich—and they're 42% with a phase out, plus the self-employment tax of 15%—you're getting close to 59% with also state and city. With carried interest, the tax rate may be 23% for a futures fund, or 15%, or 20% if it raised the long-term rate. 

There's always a big difference in the tax code between more favorable futures and long-term rates versus ordinary income and self-employment tax. 

Now the good news is that traders don't pay self-employment tax. Democrats are chipping away at that with the health care bill. They subject investment income over $250,000 to the Medicare tax. So I do expect the Democrats to play that card.

So I think traders have much to defend here, and they have a stake in the coming tax wars.

Who are going to be the friends of the traders in this? Who is going to be advocating for investors and traders going forward? Is it just the Republicans, or a certain group that we can rely on here?

Well the only friends for Wall Street are the lobbyists; not either side. So traders need to separate themselves from Wall Street and consider themselves everyday, Main Street investors. Our Traders Association is defending the interest of traders.

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