5.04.2010

Tax the big banks?

On Hill, Geithner Makes Case for a Bank Tax

Excerpt:

Timothy F. Geithner, the Treasury secretary, urged Congress on Tuesday to impose a 10-year, $90 billion tax on the largest financial institutions to recoup the costs of the 2008 bailouts. But he faced skeptical questions from lawmakers on the design and purpose of the fee.

The administration proposed the tax, which it calls the Financial Crisis Responsibility Fee, in January, amid public anger over the bank bailouts. The tax is not part of the overhaul of financial regulations being debated by the Senate.

At a Senate Finance Committee hearing on Tuesday, officials from the American Bankers Association and the Financial Services Roundtable sharply criticized the proposal. While lawmakers did not reject the idea outright, some questioned its impact on consumers and small businesses, as well as the timing.

“This is a simple and fair principle: banks, not the taxpayer, should pay for bank failures,” Mr. Geithner said. “And this is a principle with ample historical precedent.”

...

Even so, the math of the new tax proposal is complicated. Banks have largely repaid their share of the bailouts, known as the Troubled Asset Relief Program, and taxpayers are expected to actually make a profit from the federal rescue. In contrast, other recipients of aid from the program — notably General Motors, Chrysler, Fannie Mae and Freddie Mac — might never be able to repay and would not be affected by the fee.

“It’s no surprise that bank institutions are not enthusiastic about the proposal,” said Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee.

“We need to understand the best way to design the tax so that it’s fair and achieves its purpose,” Mr. Baucus said. “We need to understand who should pay the tax, and we need to understand the impact the tax would have on small businesses and the economy.”

Senator Charles E. Grassley of Iowa, the top Republican on the committee, called the fee an excise tax, as he did in a previous hearing, and urged that the proceeds from a tax be used to reduce the deficit, suggesting that he was open to the notion.

“I completely agree that taxpayers should be paid back every penny of TARP losses,” Mr. Grassley said, while adding that the bailout legislation called for calculating those losses in 2013, not now.

Mr. Grassley added: “If a TARP tax is imposed and the money is simply spent, that doesn’t repay taxpayers one cent for TARP losses. It’s just more tax-and-spend big government, while taxpayers foot the bill for Washington’s out-of-control spending.”

As proposed, the fee would apply to financial institutions with more than $50 billion in assets and that were eligible for an array of emerging assistance programs, including the TARP and lending programs set up by the F.D.I.C. and the Federal Reserve. American subsidiaries of foreign-owned banks would also be covered.


Comment: Let's take a bank like Wells Fargo. It did not want to take the TARP money but did at the government's insistence. Then paid it back with no loss to the government. And it should pay a tax for this? See my earlier post Misperceptions on Wells Fargo and the TARP

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