Washington Insider--Wednesday

A New Tax Idea Emerges

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

China State Administration of Grain Announces End of Corn Stockpiling

China will end its nine-year effort of stockpiling corn to boost domestic prices, instead opting to allow markets to set prices for corn in a move that will take effect with the start of the 2016/17 marketing year Oct. 1, according to the State Administration of Grain.

The policy shift would make the end of a system that has resulted in domestic corn prices being around 30% to 50% above the global market, resulting in record corn and corn-substitute imports. And imports are expected feels the first effects from the policy shift.

"We hope the new reform would let the market play more of a role in the formation of prices," Liu Xiaonan, a deputy director with the National Development and Reform Commission (NDRC), was quoted as saying in the statement.

In opting to let markets determine domestic corn prices, China will be faced with the task of addressing what is estimated to be around 250 million metric tons of corn. Expectations are the Chinese government could sell more than 40 million metric tons from those massive supplies yet this year, according to the Shanghai JC Intelligence Co., potentially embarking on that effort in April.

Further, JCI suggested that China could turn into an exporter of corn and corn products as the policy shift is expected to dramatically slow, if not halt, imports of corn and alternatives such as DDGs, barley and sorghum.

The policy shift has a potential double-impact on the US and other suppliers of corn and/or corn alternatives -- not only are their imports expected to dry up, forcing exporting countries like the U.S. and Australia to find new markets for those supplies, but also could see China become a competitor on the export front as well. However, the condition of some of the Chinese corn stocks may limit the export potential as those supplies are likely to be diverted to industrial uses or other non-feed uses.

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New Canadian Food Safety Policy Could Offer Benefits

Private food safety certification schemes, permitted under new Canadian food safety rules and part of a larger Canadian food safety regulation modernization efforts, present potential benefits for the U.S. food industry.

The new certification options could work to the benefit of U.S. food companies that do business in Canada. A report by USDA's ag attache in Canada notes that "the use of private certification schemes in risk assessment represents another tool available in Canada's new and modernized food inspection environment."

U.S. food companies should "take advantage of the benefits of using private certification schemes that have gained the Canadian Food Inspection Agency's (CFIA) confidence," the report said.

The rules are part of a greater Canadian effort to modernize food safety regulations, including provisions under Canada's 2012 Safe Food for Canadians Act. New food safety regulations to comply with the law are currently being drafted and are expected to be published during the second half of 2016.

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Washington Insider: A New Tax Idea Emerges

One of the things almost nobody wants to talk about during an election campaign is new taxes. Still, The Hill says, Wall Street is actively mobilizing now against proposals to tax financial transactions. To some, the tax has appeal because it has little impact on ordinary consumers. Nevertheless, the concept has gained attention on the campaign trail and in Congress, in part because of its revenue potential.

The idea already has one high-profile supporter, The Hill says, and that is Democratic Presidential candidate Bernie Sanders, who has proposed legislation in the Senate that could impose it. And, the more it is debated, the more it worries Wall Street.

They fear that such a tax would deter market speculation and thereby reduce market liquidity, according to critics who are expanding efforts to stop the proposal. They also argue that it would hurt small investors, especially Americans trying to save for retirement, savings that often are invested in mutual funds that trade frequently to maximize returns.

The Investment Company Institute, which represents mutual funds, wrote to House Budget Committee ranking member Chris Van Hollen, D-Md., last week, urging him not to include a transaction tax in any Democratic budget plan. Van Hollen floated the idea last year to help pay for middle-class tax relief.

"Quite frankly, an FTT is a terrible idea," the group said. "It would harm all investors, especially middle-income American workers saving for retirement."

The 2016 election also makes it an important moment for the financial industry to speak out against the proposals, said Micah Green, who leads Steptoe & Johnson's financial services practice. "Because of the increased rhetoric on the campaign trail against Wall Street and the financial markets, this is an issue that shouldn't be ignored," he said.

This is the first presidential election in which a financial transaction tax is being discussed, according to Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. It's gaining attention because the 2008 financial crisis "still echoes" with voters, he said, and because candidates are looking for other sources to fund programs.

Sanders would use the tax on trading to make public colleges tuition free. Legislation the Vermont senator proposed in the Senate would tax stock transactions at 0.5%, bond transactions at 0.1% and derivative contracts at 0.005%. Individuals with incomes of $50,000 or less and married couples with incomes of $75,000 or less could receive a credit against the tax.

"During the financial crisis, when Wall Street's greed and illegal behavior nearly destroyed our economy, the middle class of this country bailed out Wall Street. Now, it is Wall Street's turn to help the middle class of this country," Sanders said in a January speech.

Sanders's Democratic opponent, Hillary Clinton, has proposed a tax on high-frequency trading, where transactions are made on the same securities repeatedly and rapidly. This is seen as a narrower approach than Sanders's proposal. Clinton's tax would focus on traders who place orders and then cancel trades -- behavior critics say can distort markets == but she has not provided details, Rosenthal said.

The Congressional Progressive Caucus's fiscal 2017 budget proposal, released earlier this month, also includes a tax on securities trades. The group would tax stock transactions at 0.25%, bond transactions and foreign-exchange transactions at 0.004%, futures and swaps at 0.01%, and option premiums at 0.25%per year to maturity.

"The tax would reduce reckless speculation that adds uncertainty while driving up prices of key commodities," the caucus said.

The idea of a financial transaction tax isn't new and has been regularly opposed by the financial industry for years. The tax isn't likely to be enacted this year, experts say, but the issue's new visibility makes it important for them to get their message across.

The Modern Markets Initiative, an advocacy group for high-frequency trading firms, has been writing op-eds to speak out against the tax proposals and is talking to other financial groups and policymakers about the issue, the group's chief executive officer, Bill Harts, said. "It's important enough, and enough people are talking about it, that it deserves scrutiny," he added.

Several countries in Europe also have financial transaction taxes, and a group of European Union members is taking steps toward coordinating on the tax, but it's unclear if they will succeed. The Financial Services Roundtable hasn't undertaken any specific advocacy on transaction taxes lately. But Francis Creighton, the Roundtable's executive vice president of government affairs, said he is concerned the proposals could find their way into future legislation.

So, the transactions tax seems to be close to emerging from the woodwork, and possibly will be debated seriously in the near future. It may well be seen as a serious opportunity for spending opponents who have been increasingly stressed in their search for budget offsets that can balance popular spending as pressure to produce new budgets mounts, Washington Insider believes.


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(GH/CZ)