Thank you, Mr. Chairman, for calling this important hearing. As you know, the taxation of derivatives is an issue that I have worked on for some time. In fact, when I was Chairman of this subcommittee, we held two hearings on the tax treatment of derivatives and "exchange traded notes" or "ETNs." And I have also introduced legislation to address the tax treatment of ETNs. But going back even further, in 1998, following the collapse of Long Term Capital Management and a Fed bailout in the billions, I joined Barbara Kennelly in filing legislation to shut down the tax avoidance transactions set up through derivatives.
With that experience, I can tell you that this topic is not for the faint of heart. Just explaining the different types of derivatives can fill volumes, plus the market is constantly evolving and growing.
But this is a very important area of our tax law and one in need of reform. So I applaud Chairman Camp for taking up the challenge and releasing a discussion draft that has a lot of merit. Chairman Camp's legislation updates the antiquated tax treatment of financial derivatives and replaces it with a single set of rules. Under current law, you can have two types of derivatives that are economically similar but are taxed differently. The Camp proposal would eliminate this distinction by requiring investors to use mark-to-market for all derivatives, except for business hedging. And I think harmonizing these rules makes a lot of sense.
Today, we will hear from witnesses who will outline some technical issues with the bill. I have also heard from some of my insurance company constituents who may need us to amend the proposal to ensure that legitimate hedging transactions commonly used in that industry to insure against business risk do not get swept into the mark-to-market provisions of the bill. And I hope to work with the Chairman to address these issues.
Let me conclude by saying that this is an area where there is agreement between the parties on how to address a problem with our tax rules. So I would encourage my Republican friends to work with us on these proposals and let's get it done.
Thank you, Mr. Chairman.
