Government Tax Breaks for People Who Speculate in Oil Futures

Gas prices have come down a bit recently, but it’s not hard to remember the over $4 a gallon gas prices of just a few weeks ago.  At the time, I wrote that I (and some others) suspect that these occassional spikes in oil and gas prices were due to speculators, particularly hedge funds and global banks.

Now comes the news that those people who speculate on commodity futures like oil futures get a break on their taxes.  The profits from speculating in commodity futures contracts are taxed at only a maximum rate of 23%.  From Dealbook of The New York Times:

Here’s another little-known group of tax code beneficiaries that he might want to add to the list: day traders and speculators who buy and sell futures contracts.

For years, futures contracts, which are essentially bets on the price of commodities, stock indexes and the like, have received a more favorable tax treatment than stocks. A trader who buys and sells an oil contract in less than a year — even in a matter of minutes — pays no more than a 23 percent tax on the profits.

There are no jobs created from this activity.  It’s mostly speculation – the fancy financial term for gambling. Yet, the government gives these traders a huge tax break.  Traders who buy and sell corporate stocks and bonds within less than a year are subject to regular taxation – max rate of 35%.  But commodity speculators, the folks who collectively can drive up beef, corn, oil, gas, pork, and other prices get a break.

Now one would think that people in Washington who claim they are worried about the deficit and rising debt would look at this and go “aha, a loophole we can end, gain some revenue, and reduce the deficit”.  You would be wrong though.  The Republicans explicitly rejected closing tax loopholes as a method of reducing the deficit.

China’s Challenge

A decent article in the LA Times about the challenges facing the Chinese:

China tries to put brakes on overheated economy – How well China succeeds in slowing its economy without triggering a slump holds enormous consequences for the rest of the world economy.

 

The essence is that the Chinese economy, which has been growing at 8-9% per year for nearly two decades has based it’s growth on heavy investment spending and strong exports. In particular, to help China overcome the global recession in 2008-09, the Chinese government launched a huge Keynesian-style stimulus program of government spending and support for bank lending.  It worked.  In fact, it worked better than the weaker attempts made in most other nations.  But now, China faces a challenge.  It’s been growing so fast for so long, that the really attractive investment opportunities are gone.  Now the bank lending craze and investment craze is going after very dubious and low-return projects.    The nation is starting to push up against it’s limits.  When that happens, when the economy’s resources are already fully occupied (particularly labor), then you get inflation.  Indeed China is now experiencing some moderate and rising inflation.   They already have what appears to be a real-estate price bubble.  What they have to do is to  gradually switch over to more consumption than investment, but that’s a hard transition to make smoothly.  If they fail and their economy goes into a crash or even a moderately bad recession, it’s bad news for everybody because right now, China’s one of the strongest economies on the global scene. The U.S. needs China to keep growing if the U.S. hopes to expand it’s exports.