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As the legislative season winds down, a key bill needs to be pushed through Congress. The Stop Tax Breaks for Oil Profiteering (STOP), S. 1588, sponsored by Sen. Ron Wyden (D-OR), will drastically reduce speculation in oil and natural gas commodities and therefore halt the volatility of those markets. The MOGC is working to expand the bill’s purview to include food commodities and any carbon markets created by the climate change bill.
See this related article in the July-August 2009 issue of NewsNotes.
Currently, farmers, granaries, mills, and others who use commodity futures markets as they were intended to be used pay short term capital gains taxes (15-35 percent) on any income from those markets. But hedge funds and other financial institutions that buy and hold commodities futures only pay long term capital gains taxes (currently 15 percent) on profits from these markets, giving them an unfair advantage. An even larger benefit is provided to tax-exempt funds like endowments and pension funds that pay no taxes whatsoever on their profits from commodity investments.
Wyden’s STOP bill will make speculators in the oil and natural gas markets pay the same taxes as legitimate users of those markets. By removing these tax breaks, the bill will reduce excess speculation in these markets and stabilize their prices. If the bill is expanded to include food commodities as well, it will help stabilize food prices significantly and avoid future food bubbles.
In the past few years, investors like pension funds, endowments, hedge funds, etc. poured money into the futures markets, which drove up prices. When the money was pulled out toward the end of 2008, prices fell. Food and energy prices cannot continue to be determined by the whims of investors.
Following is a letter circulated by the MOGC, to be signed by collegial organizations, addressed to Sen. Wyden, asking him to add food and carbon commodities to STOP, S. 1588.
“We, the undersigned organizations, write to commend you for the Stop Tax-Breaks for Oil Profiteering (STOP) bill (S.1588), and what you are doing to fight excessive energy speculation. We recognize the potential it has for significantly reducing excessive speculation in energy commodities markets. It was this excessive speculation that played a large role in last year’s oil crisis and this year’s rise in oil prices despite global supply surpluses. By bringing hundreds of billions of dollars into the relatively small commodity futures markets, speculative investors in hedge funds, endowment and pension funds, and sovereign wealth funds have reaped huge profits while driving world energy prices to economically destructive levels.
“Our organizations are also concerned about the role of excessive speculation in last year’s food crisis. More than 100 million people were driven to hunger in great part due to excessive speculation. In addition, excessive speculation has destroyed the price discovery function of food commodity futures markets, rendering them useless for farmers. By giving tax advantages to financial institutions, the current situation encourages unnecessary and excessive speculation by institutional investors. We cannot allow such essential markets to be dominated by the whims of investors.
“We ask you to strongly consider including food and carbon commodities in bill S.1588. We see food commodity markets also being increasingly influenced by index funds and are especially concerned that if your bill does not include food commodities, it could give incentives to index fund managers to shift their allocations more heavily into food commodities. While many of our organizations are concerned about the possible creation of carbon derivative markets, if Congress chooses to create these carbon commodities, we want to guarantee that these newly formed markets would not be unduly influenced by excessive speculation from index funds and exchange traded products.”
Faith in action:
Contact your senators and ask them to support the STOP bill, S. 5188.
Stop gambling on hunger: Learn more about actions and education around the commodities market at www.stopgamblingonhunger.com, a new website maintained by the MOGC and other organizations concerned about the effect of speculation on hunger and food security around the world.
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