U.S. bank tax should embrace policy not populism

January 12, 2010

james_pethokoukis.jpgIf the Obama administration proposes a special tax on the U.S. financial sector, it should serve a specific purpose, like making taxpayers whole from the bailout schemes that broadly benefited the entire industry. A tax that is not targeted and temporary risks creating permanent, punitive revenue grabs on Wall Street by Uncle Sam.

While it’s not clear what the White House will propose in its budget next month, it appears to have ruled out some options, such as a tax on securities transactions. Treasury chief Tim Geithner argues its costs would be passed on to customers. Nor is it likely to be a direct tax on banker bonuses like Britain’s 50 percent supertax. That route would raise U.S. constitutional issues by punishing a particular subsection of society through the tax code. It would also have scant chance of passing Congress.

What’s left is some manner of industry-wide windfall profits tax. But to what end? Yes, recouping Troubled Asset Relief Program money is a legitimate aim. While many major banks – including Goldman Sachs, Bank of America and JPMorgan – have already repaid bailout funds, the program as a whole will lose money. Filling that hole doesn’t require new legislation. Authorization already exists in the October 2008 TARP bill instructing the president to go after any unpaid bailout funds after five years.

The risk in a windfall scheme is that any revenue generated, as with the UK bonus levy, would stream directly into the government’s general coffers to pay for whatever the White House and Congress desire, and potentially in perpetuity. That smacks more of fiscal gimmickry than a sound plan to cut government spending, reduce the budget deficit or, indeed, curb misguided pay incentives in the financial industry.

It would, of course, provide political cover. The White House has been accused of being too cozy with Wall Street. Its financial reform plan has been attacked for going easy on big banks since it neither reduces their size nor their complexity. As such, the president’s task will be to dispel doubts its emerging bank tax is more than mere populism.

Comments

I think a targeted and short term tax is an excellent idea. President Obama won’t get any kudos for this though. The American people seem to. of late. been behaving like child in the grips of the ‘terrible two’s’.

Posted by susanai | Report as abusive
 

Obama should do this because for us average people the financial firms behavior is just sickening and they act like robber barons. Banks got bailed out 100 cents on the dollar using tax payer money, but banks are quick to charge fees and higher interest rates if consumers are late. Financial instutions who pay out ridiculous bonuses (at least in the eyes of the ordinary americans like us) can afford to pay a special tax. They did get a windfall after all called TARP…

Posted by Bert2 | Report as abusive
 

The American Government can’t have it both ways. Either give out funds to save the financial sector (and when they repay the funds leave them alone) or let these businesses fail for their bad practices and truly pay for their mistakes.

To levy a tax on, what the government calls unfair, bonuses is wealth redistribution and an unprecedented expansion of government’s power (both morally and economically) over the people. It will be a scary day when the government tells private companies how much is “fair” to pay their executives.

For a good article on this see: http://www.philosoguy.com/119/discussing -tarp-and-wall-street-bonuses/

Posted by pcasinelli | Report as abusive
 

It really won’t matter either way. Taxing big banks is a great short term approach to getting more money, but this will not have any long term effect on bank profits. This tax, if enforced, would just be passed on to the bank’s customers in the form of more and higher fees, lower return rates and higher interest rates. By the way, it isn’t the government telling private companies how much is fair to pay executives. What we need is someone, anyone telling these private corporations that it is wrong to pay their executives millions of dollars fleeced from hard-working people just trying to get by. If a bank has enough extra money to dole out bonuses, then why can’t they use that money to extend credit to those who need it. If not that, at least they could save said money for a “rainy day”, instead of continuing the trend of fiscal irresponsibility that led them to require a bail out in the first place.

Posted by boredwithbanks | Report as abusive
 

Funny how those who cry it would be unfair of the government to tax and “redistribute wealth” see no problem when the banking and Wall Street crowd are happily profiting at the expense of everyone else. What social purpose do banks and Wall Street, or the rest of the economy for that matter play, if it is not for social good of humanity? Is life just supposed to always be about personal aggrandizement and the lust for financial power regardless of the costs to humanity and the planet as a whole?

Don’t tax the banks and Wall Street as they will just pass it on as “the cost of business”, tax the big incomes and consumption and get on with it quickly before the rest of society, including our armies, starves to death. Lets end the needless inequity that makes humanity’s problems unsolvable!

Posted by turkeyfish | Report as abusive
 

The banking sector has NO room to complain about ANYTHING. They have sucked vast sums of money out of the financial system and replaced it with IOU’s that the citizenry is then placed on the hook for. And as if that weren’t bad enough the banks then demand that citizens pay their debts even though it’s the taxes taken from that same citizenry that has allowed the banks to continue existing in the first place.

Business execs need to quit their whining and complaining. They owe the citizenry for their very existence. Instead of undeserved bonuses they need to be reworking loans and other financial agreements that make repayment conditions favorable to the very people they owe their continued existence to. But it’s only if the people themselves place pressure on Washington and their elected representatives that anything of the sort will take place.

Business execs and politicians sneer at populist ideas. But that’s only because the populace itself chooses to remain quiet and accept the shaft they are constantly given. When that changes everything else will change as well.

Posted by Benny_Acosta | Report as abusive
 

If by populism you mean the prevailing sense that bankers haven’t really been very good at running banks at all, such that regular everyday people could do no worse than the bankers have, for less money and subject to honest taxation – then, populism isn’t such a bad thing and high time that America under Obama gave it a shot.

If by “mere populism” you mean policies that roll nicely off the tongue as all reassuringly feel-good sound-bites do at first blush, but in the end produce nothing besides covert profit for the same old enemies of the people – then that wouldn’t be good at all, would it?

Still, cheap imitation populism would mean falling right in line with just about everything else in mainstream American politics since the late 1970s. At this point in history, that’s about all U.S. bankers can honestly count on.

Posted by HBC | Report as abusive
 

the banks operate in this country on the discretion its citizens and the banks sovereignty to operate in a safe marketplace is provided by the men and women who have died and continue to give their lives on the battlefield for this right. The banks will do what the citizens will them to do or the banks/bankers/wall street will come to think of Venezuala as a safe haven.
The citizens do not need their services, after all, banks and wall street are just an intermediary between savings of the citizens of this country and capital investment in the private sector. And they have to date done a piss poor job of creating future demand of goods and services via capital goods investment in this country.
Who the hell needs them.

Posted by csodak | Report as abusive
 

Well look, all of want the financial services industry to prosper; however, I believe we have been had by a host of buccaneers who now plan to take a final (we hope!)chunk of the booty and ride into the sunset. No,I object and we now must re-regulate. I support the reimplementation of the Glass-Stegal act and will not vote again for a representative, senator or president that fails to perform either this intervention or another serious fix. If you’d like to see what could occur take a look at Yegor Guidar’s recent story of what happened to his country and how criminal capitalism destroyed their attempt to maintain a semblance of democratic government and open capitalism.We cannot have another market crash like the one we are experiencing now.

Posted by ClaudeM | Report as abusive
 

{Nor is it likely to be a direct tax on banker bonuses like Britain’s 50 percent supertax. That route would raise U.S. constitutional issues by punishing a particular subsection of society through the tax code. It would also have scant chance of passing Congress.}

Quite right, which is why such a super-tax should be confiscatorial an kicks in at some megabuck level, say $10M at 80/85/95%.

This will maintain incentive for mere mortals and curb the cupidity at Wall Street Investment Banks like Goldman Sachs.

If marginal taxation on exorbitant salaries is not raised across the board (and placed back to where it was before Reckless Ronnie took a hatchet to it), then America is heading again for a generalized Economic Catastrophe precisely as disastrous as that brought about by the SubPrime Mess, only different.

Besides, its Income Unfairness is the highest of any developed country and wholly lopsided in distribution. (Read here for research results in the matter: http://sociology.ucsc.edu/whorulesameric a/power/wealth.html )

Posted by deLafayette | Report as abusive
 

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