U.S. bank tax surprisingly isn’t dead on arrival

January 14, 2010

— James Pethokoukis is a Reuters Breakingviews columnist. The opinions expressed are his own. —

The U.S. Congress, particularly the Senate, has been a graveyard for aggressive financial reform. And banks are hoping the new bank levy will suffer a similar fate. They shouldn’t count on it. A clever design and a determined White House push mean Wall Street may have to pay up.

At first glance, the proposal would seem to have no better chance than a number of other relatively tough measures stuck on Capitol Hill. A transaction tax — often called a Tobin tax — and a super-tax on bank bonuses are among ideas that appear to have no future. For each, support in the Senate has been lacking.

But smartly constructed policy can make the politics easier. Legislators see logic in focusing a tax on the liabilities of institutions that make use of hot, wholesale sources of finance. Structurally, that looks a lot like the levies the Federal Deposit Insurance Corp already charges for deposit insurance — and the government’s recent role rescuing banks wasn’t so dissimilar from what FDIC does with deposits.

Also, the tax is supposed to hit investment banks hardest. That means it can be billed as a sort of Goldman Sachs Tax. In Washington as in Hollywood, an obvious villain helps sell a story.

The Obama administration views the tax as a splashy way of touting policies designed to prevent a repeat of the financial crisis. Unable to loudly trumpet an economic recovery as November’s elections loom, a populist battle against Wall Street is seen as the next best boost for Democrat candidates.

Republican objectors will be forced to side with the banks. And there just might be fewer senators willing to do that than Wall Street needs. While there are a couple of Democrats whose support can’t be counted on, Republicans Chuck Grassley of Iowa and Olympia Snowe of Maine co-sponsored a bill last year that would have taxed bonuses at banks that received government help. They and other moderates in the GOP might support the tax if they believed it would help reduce the U.S. deficit.

At the same time, any notion that the bank levy could become a permanent tax would rally Republicans against it. But as things stand, the tax — rather surprisingly — seems to have avoided being seen as dead on arrival.


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Obama fixes everything…the economy, healthcare…all he needs is higher taxes…http://storyburn.com has the hot Obama New Year Hymn: I Love Debt

Posted by muchstardude | Report as abusive

It would be good if this tax were to reduce the US deficit (a point apparently missed by the first commenter) but “smartly constructed policy” and “logic” are not often seen in Washington.

Posted by moebadderman | Report as abusive

Obama already got his Peace Nobel Price – quite deservedly. He established peace between …hmmm… can’t remember… but does it matter? he deserves it just because of being Obama, and who thinks otherwise is [your favorite definition of such people here].
Looks like now he’s after another Nobel – this time in Economics. And he’ll deserve it – as much as he deserves his Peace Nobel.

Posted by An0nym0us | Report as abusive

Excellent Tax! Let those who cause these mess pay the bill. When specially it will reduce the deficit and but those ‘criminals’ on leash like good submissive they should be wearing Government’s collar.

Posted by Cali4nian | Report as abusive

Screw the banks. They raped the taxpayers. Now it’s payback time. Any Senator who votes against it clearly is not on the people’s side.

Posted by bikebrainiac | Report as abusive

Quite simply, this is moronic. First off, the banks who are being forced to pay this “tax” are only the strongest banks who have already paid billions of dollars in dividends on the TARP funds they held, most of whom have already paid back their loans. Most of these firms are once again profitable, which our newly elected socialist leader clearly opposes. Earlier this week, it was reported by the Washington Post that the Fed will report a historical high $45 Billion dollar profit, all of which will be handed over to the U.S. Treasury, thus, back to the tax payers. Instead of punishing Wall Street for their efforts, Obama’s response should have simply been “thank you”. But the Obama administration prefers to paint these firms as “evil empires”, so it would be too above him to do such a thing. Remember last month when the government revised the estimated cost of the TARP program DOWN by $200 Billion – which clearly indicates they’ve been using worst-case-scenario estimates all this time? Well expect more of that to come.

But let’s assume that Obama Taxkrieg is successful with this effort, does anyone truly believe the tax burden will be on the banks? If so, you’re completely wrong. The burden will always be passed through to the customer, especially since this virtually will affect the entire industry (so no major bank will have a competitive advantage of not having to pay it). Every bank will simply increase fees to every customer, which, by the way, if Obama understands anything about the financial markets, is exactly what he wants. The last thing any intelligent investor would want is for this to come straight out of company earnings since that would only put more downward pressure on bank stock prices and decrease total shareholder wealth. What president would intentionally do that? I think I have an answer for that question..

Posted by RichardC | Report as abusive

I would be all for this tax if I knew that the customers of these banks weren’t going to be the ones paying for it. The taxpayers getting jerked around twice, we should have let the banks fail.

Posted by anamericancynic | Report as abusive

Did all the military people from the revolutionary war to the current “wars” really die so that we could bail out various banks so that the “hard working” CEO’s and other risk takers could be free to be very well paid? Somehow I thought freedom referred to we the people. Shame on us for electing politicians that permit and condone and fund all of these scams.

Posted by richinnc | Report as abusive

So bank execs took risk with money of depositors, then government stepped in and stopped a run on the banks when the banks began to fail, America avoids 2nd Great Depression, then banks took government (tax) money and paid execs bonuses, so government decided to limit exec pay, so banks paid back original borrowed principal, now government wants to recoup interest on money loaned to banks with a tax, so banks execs want to find loop holes to not pay interest back… hmmm…what if this was handled like it should have been: Bank execs jailed for conspiracy to commit fraud, government nationalizes the banks, breaks banks into small banks, appoints local banking rules to keep banks small and bank exec compensation reasonable, banks must pay back government money plus interest, America prospers… too good to be true…

Posted by chemeng4u | Report as abusive

Considering 30,000 plus people make a living as non-productive lobbyists in Washington, forcing more bureaucrats to deal with special purpose, non-democratic sales-pitches which appear to be in breech of constitutional restrictions on federal government, a populist approach by any president would always hold top-priority. And what would be more appealing than taxing Big Banks?

The former South-Bank community advisor, having taken up office space at the White House temporarily, may or may not understand that consumers will be paying every dime of the new tax plus a reasonable margin for the bottom line. But who cares? Not the presidential troika BLT (Ben, Larry and Timothy) all of who have qualified for 1st price on Fools Day in April only. Worse….clearly documented.

An old German saying goes: “When anyone takes up a management job beyond his capability in any business, his ‘shitty’ decisions for the short term turns out to levy a ‘shitload’ of ‘crap’ on the organization until its progressed sudden death”.

Questions pops up: For how long will the average American tolerate mismanagement in the White House? When will a simple screening test procedure be introduced to eliminate non-qualified presidential candidates as George Bush and the even more hopeless current president, potentially a bigger and more costly embarrassment for Americans than his predecessor? And finally…… how will the revolution/civil war be fought in 2020 when direct and indirect taxes level those in Europe, the dollar have lost another 40 to 50% value and the Chinese, for continued financial support, are swapping trillions of worthless treasury notes for real American assets with longevity?

Posted by usrealism | Report as abusive

Obama fixes everything even if he has to bleed the bankers dry. http://storyburn.com has the hot Obama holiday song: soak the rich

Posted by muchstardude | Report as abusive