Wyden Hits Oil Speculators in the Wallet
Senator Introduces STOP Act to End Tax Breaks for Oil Speculators
WASHINGTON, D.C. - In order to reduce excessive speculative trading in oil and natural gas, U.S. Senator Ron Wyden (D-Ore.), a member of both the Senate Finance and Energy and Natural Resources Committees, introduced the Stop Tax-breaks for Oil Profiteering (STOP) Act of 2009 today. The legislation would end tax breaks that non-commercial speculators currently enjoy, and tax all profits at the same rate as ordinary income for tax-paying investors. Oil and gas trading gains would be treated as unrelated business income for tax-exempt investors. Since 2000, commodities markets have been flooded with hundreds of billions of dollars in speculative investments in oil and gas commodities, which many experts believe to be a key contributor to volatility in the markets and high oil and gas prices for consumers.
"The tax code has fueled an explosion of speculators who are distorting oil and gas markets and driving up prices for everybody," said Wyden. "The STOP Act will take away the unfair tax breaks for speculators like hedge funds and help drive away anyone looking to make a fast buck by gaming the market."
Under current tax law, commercial buyers —such as airlines, trucking companies, and independent refiners —who need to buy oil or other fuels or futures contracts in order to run their businesses pay ordinary income tax on any profits from such trading. By contrast, for-profit speculators often pay lower capital gains rates on their oil and gas trading profits. Unlike commercial businesses that try to consume less oil when prices rise, speculators react to rising prices by buying more oil and futures contracts. This distorts the normal supply-demand balance of the markets and increases the price of the commodity.
Tax-exempt investors—such as pension funds and university endowments—pay no taxes at all on these investments. Under the STOP Act, tax-exempt entities would be required to pay unrelated business income tax on such investments. Everyone directly purchasing oil and natural gas (or related products like diesel fuel), or indirectly through futures contracts, commodity index funds or other investment strategies, would be subject to taxes similar to those of commercial commodity traders.
In 2000, speculative trading in the oil futures markets accounted for 37 percent of crude oil trading on the New York Mercantile Exchange. By mid-year last year, that number had grown to more than 70 percent.
More information on the STOP Act can be found at Senator Wyden's web site: http://wyden.senate.gov/issues/Legislation/oilspecdraft/stop_act.cfm