What happened to Obama’s bank tax?
Via my Breakingviews opinion-torial:
Detecting a political pulse on the proposed U.S. bank tax is hard. Yet bankers still fret a revival. They know Congress, eager to pay for expiring tax cuts, sees them as a pool of ready cash. And even if Wall Street dodges that bullet, the cost of rescuing mortgage giants Fannie Mae and Freddie Mac may still shock the levy back to life.
Britain and Germany have already introduced such taxes to reduce risk taking. And many in Europe would like to go further and implement a financial transactions fee if major economies could agree to take the plunge jointly. But the idea is nowhere on the U.S. public policy radar, especially with the Treasury Department opposed.
Even the Obama administration’s previously announced bank tax is an iffy proposition. The 10-year, $90 billion “crisis responsibility fee” was directed at banks with over $50 billion in assets. Institutions that took more risk and more “hot money” would also pay more. But it wasn’t included in the summer’s financial reform bill for fear of scaring away Republican support. In any case, the original concept was designed as a way to recoup losses on the bank bailout. The latest estimates scaled those back dramatically to less than $50 billion.
The tax received a second life as a way to help pay for various expiring tax cuts for individuals. But Congress didn’t get around to acting on those. Lawmakers might yet move during the upcoming “lame duck” session, making big banks nervous. If Congress wants to pay for various tax cuts, nicking Wall Street and other banks would be one way to do it.
It’s a long shot. But not long enough to keep America’s community bankers from firing off a fresh letter on Friday opposing any bank levy or fee. Although Republicans loathe the idea, the government remains on the hook for $150 billion of aid to Fannie and Freddie. When Washington gets around to figuring out what do with those troubled enterprises – probably after the 2012 election – the bank tax may reemerge as a way of covering losses. Maybe it isn’t so much dead as it is in suspended animation.