Opening Statement of Rep. Phil English
Ranking Member, Subcommittee on Select Revenue Measures
Hearing on Tax Treatment of Derivatives
March 5, 2008
(Remarks as Prepared)

Thank you, Chairman Neal, for calling this hearing today.  I hope this will be another active year for this Subcommittee as there are many issues confronting Congress with respect to the tax code.  I also hope, Mr. Chairman, that you will remain as receptive to input from our side of the aisle on the Subcommittee’s agenda as you were last year.

While I look forward to the nuances of all of the testimony today, I am particularly interested in the second panel’s framing of the complex issue of Exchange Traded Notes (ETNs) as well as their views on whether the current tax treatment of these products is appropriate or warrants change.

Mutual funds have sought for some time the ability to defer some or all of the gains that currently must be distributed and taxed at the investor level.  Additionally, some of those same companies that offer mutual funds have developed a product that provides many of the benefits of a mutual fund, including diversification and exposure to a variety of types of risk, without requiring annual distributions of income.

In my view, this demonstrates that clever minds can always find ways to torture the tax code into producing the desired result.  In light of this, it may prove more fruitful to look at the labyrinth of rules currently on the books for financial products generally and determine whether a wholesale revision is needed.

Yet, today’s hearing embarks on the narrower mission of determining if a change to the way our tax system applies to ETNs is warranted.  Given the difficulty of more fundamental reform or simplification, I understand the Chairman’s desire to examine this narrow issue on its own.

Nevertheless, I am concerned that the legislative approach favored by Chairman Neal will likely only serve to replace one area of examination for another.  After all, the same ingenuity and creativity that creates innovative financial products in the capital markets will continue to evolve.

I favor solutions that provide less taxation on capital rather than more.  In the 109th Congress, for example, I joined many of my Ways and Means colleagues in cosponsoring the GROWTH Act, introduced by Representative Paul Ryan, to allow some deferral of gains on mutual funds for investors who reinvest those amounts.

Generally speaking, if an issue of equity between two functionally similar financial products arises, I prefer reducing taxes on one rather than raising taxes on the other.  I am interested in hearing the views of the witnesses on this point specifically today.

With that, Mr. Chairman, I look forward to the testimony today to help parse these difficult questions.

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