• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Taxing Banks to Pay for TARP: Just Playing Politics

    It is fun and politically profitable to attack banks and bankers, especially in the wake of a bailout program estimated to have cost American taxpayers some $150 billion. Given this, the plan floated yesterday by the Obama Administration to charge a “fee” (read tax) on financial institutions to cover losses under the TARP program is understandable. That doesn’t make it sensible.

    The plan will do nothing to force those responsible for much of TARP’s losses — primarily AIG, General Motors, and Chrysler – to reimburse the Treasury one cent. That money is likely lost. It will, however, force firms that didn’t take bailout money – and those that took money but have already paid it back with interest, to subsidize the money losers.

    Worse, it promises to do so in a way that is going to make the financial system less sound, and possibly even make it harder for ordinary Americans to save for retirement.

    As reported so far, there’s no word on exactly what form the fee would take, but several potential methods have been mentioned, each worse than the next one.

    • Surtax: It could be a surtax on top of existing business taxes, to be paid by firms over a certain size. But this would hit the healthiest firms – those least likely to impose bailout costs. Of course, the mere existence of such a surtax will immediately reduce the stock price of financials that still need to raise capital levels, and are vulnerable to further losses on commercial real estate, consumer products, etc.

    • Excise tax: Under an excise tax, assessed on assets, payroll, or perhaps average pay of top executives, firms would be taxed more “equally”. But that means problem institutions will be further weakened and be even more vulnerable to failing. Moreover, excise taxes no doubt will be used to penalize politically unpopular expenses – regardless of justification — increasing government micromanagement.

    • Surcharge on financial transactions: A third proposal would be to charge a 0.25 percent tax on all stock, bond or other financial transactions. Unfortunately, this idea would mainly hit the 401(k) type retirement savings accounts of ordinary Americans, for a very high proportion of stock transactions are connected with the management of these accounts. The tax, small as it seems, will be added to the costs paid by these plans, thus further reducing the money that future retirees will have to live on.

    This is completely the wrong approach to reducing the swollen deficit, and will inevitably cause more problems than it solves. It is a bad idea being used to score political points, and should be dropped.

    Posted in Economics [slideshow_deploy]

    7 Responses to Taxing Banks to Pay for TARP: Just Playing Politics

    1. J.C. Hughes, Texas says:

      Agreed. The leftist majority in congress would have failed long ago if forced to follow the same fiscal rules they’ve continually forced upon corporate America. But then again, I suppose you can have it your way if your principles are in sync with an exploitative street culture.

    2. Pingback: Tweets that mention The Foundry: Conservative Policy News. -- Topsy.com

    3. Jill, California says:

      Taxing the banks? The banks? That's just more smoke and mirrors.

      The government is taxing us … the very people Obama promised would not see their taxes increase … because the banks will merely pass the costs on to their customers. It just sounds more palatable to sell it as a tax on the evil fat cats that contributed to our country's economic crisis.

    4. Drew Page, IL says:

      We all know good and well that any taxes imposed by the government on the banks will be passed along to all who use the services of those banks.

      For a president and a political party that claims to care so much for the american people, especially poor American people, and who want to limit the amount of salary and bonuses the fat cat bankers pay themselves, it strikes me as odd that none of them have thought of re-establishing Usury laws. Certianly there are enough votes in the House and Senate to pass such legislation.

      The big banks make most of their profits on credit cards. Credit card interest charges run between 18% to 23% on revolving charge accounts and 30% or more on late charges. The banks have a practice of sending credit cards to everyone and anyone, regardless of their ability to pay. The banks in fact make more money from those who are least able to pay and the most dependent on credit. When the banks gave mortgage loans at adjustable (baloon) interest rates to those who put no money down and whose annual salaries were insufficient to meet payments (and in some cases to those who were unemployed) these practices were later condemned as "preditory" by the very politicians who pushed the banks into this. What the banks are being allowed to do with credit card charges is far more damaging and preditory, in that these practices affect far more peiople.

      Let Congress propose legislation to limit banks from charging more than 10% simple interst on credit card purchases and let Mr. Obama sign it with the same haste he signed the Stimulus bill. Three things will happen immediately, (1) banks will drop those who can't pay; (2) they will cease issuing credit cards to anyone who isn't credit worthy and: (3) the immense profits taken by these banks will shrink, thereby reducing the amount of profits available for hugh salaries and bonuses.

      There would be another consequence to such legislation and that would be that consumer spending would drop off. People who couldn't afford to buy things would have to wait until they could afford to do so. What refreshing idea.

    5. Drew Page, IL says:

      Of course any taxes on banks would be passed along to those using these banks.

      For a President and a political party so dedicated to standing up for Americans, especially poor ones, I find it odd that Congress hasn't seen fit to re-establish Usury laws, limiting the interest banks can charge on their loans to no more than two or two and one-half times the Prime Rate. Currently, the Prime Rate is about 4%, yet banks issuing credit cards charge between 18% and 23% and up to 30% once payments become delinquent.

      I'm sure that Congress would have no trouble proposing such legislation, after all they have the votes to overcome any Republican objections, and I'm equally sure that President Obama would sign it as quickly as he did the Stimulus bill, after an equal amount of scrutiny.

      Currently, the bank owned credit card companies, issue credit cards to anyone and everyone, regardless of their financial standing. They encourage debitors to make 'minimum payments' so that they can keeping charging their ruinous interest rates forever on unpaid balances. In fact, the credit card companies make most of their money on those least able to afford credit.

      If such a Usury law were passed limiting what banks could charge on credit card debt, three things would happen immediately, (1) credit card companies would immediately cancel credit to anyone who couldn't make timely payments; (2) credit card companies would issue credit cards to only those who were credit worthy; and (3) the immense profits made by the banks on previous interest rate would shrink dramatically, thereby limiting the huge salary increases and bonuses these banks pay their executives.

      If Congress

    6. Loomda, NE says:

      Let's institute a politician tax. If they want to regulate the country, then they should have to pay a management fee to the federal deficit. It's far too lucrative (they're being paid far more than they deserve) for them to stay in power. Make politicians feel the pain of their decisions and see if their ideas "for the good of the people" remain the same; bet they don't.

    7. Jeanne Stotler, Wood says:

      Another way of taxing the public, does anyone really believe this won't be passed on to us the public? Only good thing is that anyone dealing with a baank will pay equally, I believe that's about 90% of us. I do not think it's good, why not just add interest on.

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×