Yesterday, President Obama announced his plans for new restrictions on financial firms. The President is right to insist that taxpayers recoup their investment in the TARP program, but as I pointed out in the below post last week, the administration should reconsider the proposed bank tax.
Some questions about the administration’s bank tax plan.
- Does the administration seriously think this tax is a good idea – or is it all political positioning? The flow of comments from the administration on record and on background strongly suggest the latter.
- TARP losses are now projected at $120 billion. If that projection is correct, about 75% of the taxpayer contribution will be recouped. How much of the remaining loss is attributable to banks – and how much to expected losses on the aid extended to GM and Chrysler? 1/4? If so or anywhere near it, why is the tax to fall on banks only? Why not on auto companies too? Auto suppliers? Residents of Michigan?
- Who got the biggest windfall out of the mortgage boom? If I had to guess – people who sold homes in 2005 and 2006 and then redirected the money out of real estate. Their individual gains may be small, but collectively very large. Should anything be clawed back specifically from them? Why not?
- Wasn’t the whole point and purpose of the administration’s actions in 2009 (and the Bush administration’s actions in 2008) to restore profitability to the banks by any means necessary? Didn’t the administration consciously and knowingly reject policies such as direct investment in the banks that would have enabled the government to share in the proceeds if profitability were restored? In other words – they got the result they wanted. Why complain?
- Why is the non-bank financial sector exempted from the administration’s wrath? Hedge funds etc. – don’t they benefit just as much from the ability to burrow near zero in the United States and lend at higher rates abroad? And if the answer is that this “carry trade” is very risky and the hedge funds have earned their returns, why is the trade not just as risky (and the returns as earned) for banks?
- If the tax is based upon the size of a banks’ portfolio of loans, does that not contradict the administration’s stated goal of encouraging banks to lend more? If the tax is based upon the riskiness of those loans , why are we confident that we are better at judging riskiness today than we were in 2006?
- Which committee of Congress will have jurisdiction over this new idea for holding bankers to account? Would it be … Ways and Means, chaired by Charlie Rangel? Why yes I believe it would. It will be interesting to hear Chairman Rangel discuss the importance of honest disclosure and full responsibility for one’s obligations.
- Is 2010 to be the year of the Obama tax increase? As I count them, in addition to this proposed new tax on banks, there are 1) the jump in tax rates as the Bush cuts expire; 2) the increase in the Medicare payroll tax proposed to fund health care reform; 3) the excise tax on high-value health plans; 4) the implicit tax increases in cap-and-trade; 5) the implicit tax of the health insurance mandate. Not saying they are all bad ideas – but there sure are getting to be lot of them. And I’m sure I forgot some – didn’t I?