Tax banks to make them smaller

July 15, 2009

When the WSJ editorial page proposes any kind of new tax, it’s worth paying attention to:

Another answer would be an FDIC-style bailout tax, perhaps tied to leverage ratios, for those in the too-big-to-fail camp.

Janet Tavakoli is on a similar page:

U.S. taxpayers should insist that a large part of Goldman’s revenues and profits belong to the American public.

A Goldman-specific tax might be fun to attempt, but there really is a public good to be served in taxing what you want less of — which is too-big-to-fail banks making outsize bets with other people’s money (backstopped by the taxpayer, of course) and then paying themselves billions of dollars in bonuses.

The WSJ’s bailout tax idea is a good one — especially if it rose in line with a financial institution’s balance sheet, and gave those institutions a serious incentive to shrink. If you can’t legislate a hard cap on assets, then you can at least provide some gentle encouragement to get smaller rather than bigger.


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