U.S. bank tax should embrace policy not populism
If 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.