James Pethokoukis

Politics and policy from inside Washington

Latest on Obama bank tax

January 14, 2010

The U.S. bank tax isn’t dead on arrival, amazingly. Congress, particularly the Senate, has been a graveyard for punitive financial reform. And banks are betting the new levy will suffer a similar fate. Don’t count it. A clever design, along with a determined White House push, means Wall Street may have to pay up. A few more points:

– Goldman Sachs, Morgan Stanley get hurt the most
– Tax is likely to be permanent despite WH claim
– Republicans may not be as opposed as what you might think. Watch Grassley and Snowe.
– Could be paired with a tax cut bill.
–part of broad WH political push to run against Wall Street to help 2010 Dems

Comments

Politics and the bank tax, and will Congress approve of this Presidential budget item?

Pundits are forecasting the Senate may say not to the President’s proposal for a “financial crisis responsibility fee” (bank tax) as part of the President’s 2011 budget out in February 2010. I disagree and believe the bank tax will be enacted, perhaps in a somewhat modified form.

The first break down of political sides should be the Democrats in the House and Senate voting “Yes” to support the President. Democrats are already trying to pile on and win some thunder (and sausage fund raising) with bank bonus tax bills too – and those should not pass.

But, will Republican Congressmen rush out their standard party-line against no new taxes, including this bank tax on Wall Street? Some have already, but others may show some refrain. Will New York State Congressman speak out against singling-out Wall Street for this significant bank tax increase? Some may, but others like Senator Schumer (D-NY) probably will not. This may explain why Schumer has been so silent in the public view lately, as he was probably in the loop on these developments. Same for Senator Dodd (D-CT) and this explains his recent retirement announcement even more.

Most Republicans have been very vocal against the TARP bailouts all along and also against Wall Street wheeling and dealing too.

The left-progressive populist movement wanted a wider financial-transaction tax – the Congressman DeFazio (D-OR) and Senator Harkin (D-IO) bills that our Traders Association is fighting with petitions- and the left wants to appeal to the more important political voting ground of Main Street versus (tiny yet rich) Wall Street in the Tale of Two Cities.

The Tea Party populist movement supports the Republican platform on no more: big government spending, tax increases, more regulation and intrusion.

This is a tricky political battle because it’s confusing which side Democrat or Republican better represents populist-anger on Main Street. Both want to appeal to those voters and there are many.

The President’s bank tax proposal is partially intended to suck the wind out of populist sails – by charging 100 billion of new taxes to Wall Street – bringing politics back towards the center, where he must operate from as President now. Lingering populist anger is also destructive to the recovery and governing.

Are Republicans going to take this bait now and rush to defend Wall Street, who is almost non-defensible in the public’s view at this point considering the overall environment on these issues?

If Republicans force a Presidential budget veto vote over the bank tax issue along, they will set themselves up for only losing choices in my view. On the one hand, defend Wall Street – and huge bonuses paid to executives rather than giving that fee money to TARP-lending taxpayers – which could serve to lose more Main Street votes. Or, on the other hand, support the bank tax and be hypocritical on their overall no new tax pledge.

I think Congress will approve the President’s budget on the bank tax and the President will use his political capital to see to it that they do. The President has declared Wall Street versus Main Street economic issues to be his prerogative and he will not let Congressional sausage-making process mess up the economy and finance the way it has with health care. The President is right! Plus, I expect the President to table the financial-transaction tax bills and new bonus tax bills too. Secretary Geithner and the President were clear on these being bad ideas and you can take their consistent no-drama Obama style to the bank.

Wall Street will continue to protest about the bank tax and there will be some deal making I presume. Perhaps to take it a little easier on other Washington attacks against Wall Street including financial reform, the Financial Crisis Commission, other Congressional hearings, white-collar criminal financial service investigations and enforcement actions, other regulations, other tax bills, and more.

This whole saga seems to be coming to a head in the U.S., just a short time after coming to a head in the UK with the banker bonus tax. Most of all, we don’t want a nasty financial-transaction tax on traders and investors!

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •