In January, President Barack Obama introduced his bank tax proposal as a way “to recover every single dime the American people are owed” for the federal government’s bailouts.
Later that month, in his State of the Union Address, the president reiterated his claim that the tax is merely a way to recover bailout money owed to taxpayers by the financial sector.
Why the president would think such a tax is needed is unclear. The Federal Reserve recently announced it had made a record $46.1 billion profit last year, in large part from the securities it bought from companies as part of the bailout. Can’t the American people be paid back from that?
The proposed bank tax, which the president promises would be temporary (but of course we’ve heard that before), would impede progress toward several of the administration’s own goals, such as increasing lending and rejuvenating the U.S. economy.
Even Obama supporter and billionaire Warren Buffett recently spoke out against the proposal, telling Bloomberg Television supporters of such a tax “are trying to punish people.”
Buffett is right. The tax would indeed punish people, and not just the “evil” banking CEOs or Wall Street, as populist pundits claim, but all of us. It would do so by lowering investment returns for shareholders, increasing myriad fees that consumers pay, and likely decreasing banks’ willingness to lend. All of this would not only harm individuals but also hinder economic recovery.
The so-called “financial crisis responsibility fee” would be levied against financial companies, including banking companies and insurers with more than $50 billion in assets. Subject to the tax would be many of the financial companies that have already paid back TARP money with interest, firms that were forced to take TARP money, and even some companies that never took money in the first place.
Curiously exempt from the tax are the auto companies, Fannie Mae, and Freddie Mac, each of which has cost taxpayers hundreds of billions of dollars in bailout funds. Federal officials already have admitted much of the $86 billion given to GM and Chrysler will never be repaid. Moreover, much of the blame for the financial crisis belongs to Fannie and Freddie, but they’re getting off scot-free from a tax allegedly aimed at those responsible for the crisis.
This bank tax is really nothing more than a populist political scheme to pull in more money for a bloated government. The Senate just allowed the federal government to borrow an additional $1.9 trillion, raising the debt ceiling to $14.3 trillion. The federal budget deficit surged to $1.4 trillion in 2009, yet the Obama administration is still pushing a $1 trillion government takeover of health care.
Like most “temporary taxes,” it’s a good bet the bank tax will end up being a permanent slush fund for big-spending politicians who will push to raise or expand the tax in the not-so-distant future. The tax is not about the bailouts, bonuses, or even punishing banks for over-leveraging. It is about the Obama administration and its big-spending allies in Congress creating a new spigot of the people’s cash for the federal government. The financial sector just happens to be an easy and lucrative scapegoat.
The federal government has taxed and spent beyond its means for far too long. Allowing a new mechanism for prying hundreds of billions of dollars from the public would indeed “punish people.”
John Nothdurft ([email protected]) is budget and tax legislative specialist for The Heartland Institute.