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.