Obama Calls for Bank Tax to Recoup Bailout

Obama Calls for Bank Tax to Recoup Bailout
By JACKIE CALMES
Copyright by The New York Times
Published: January 14, 2010
http://www.nytimes.com/2010/01/15/us/15tax.html?ref=global-home


WASHINGTON — President Obama on Thursday called for collecting a new tax for at least a decade on about 50 of the largest financial institutions, saying he wanted “to recover every single dime the American people are owed” for the bailout of Wall Street.

“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair, that by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”

Mr. Obama continued, “What I say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.”

The proposed tax on bank, thrift and insurance giants with more than $50 billion in assets would start after June 30 and raise an estimated $90 billion over 10 years, according to the White House.

But the levy would remain in force longer if all losses to the bailout fund, the Troubled Asset Relief Program, are not recovered after a decade. The Treasury projects that the losses from the $700 billion loan program created in October 2008 could reach $117 billion, which is about a third of the losses that the government projected last summer — an improved forecast that reflects the renewed strength on Wall Street, even as Main Street struggles.

The White House said that collecting $117 billion would take about 12 years, but Treasury officials have said losses are likely to be smaller. Still, with post-recession deficits at levels unseen since World War II and Wall Street never broadly popular, the pressure on a future president and Congress to keep the tax in place is likely to be significant. .

The administration’s name for the tax — a “financial crisis responsibility fee”— suggests its political underpinning. Anticipating objections that big banks have repaid the government with interest — complaints that bank lobbyists have raised since word of the tax first leaked — the administration is justifying the levy by arguing that banks were responsible for causing the financial crisis in the first place.

The Obama team has been buffeted by populist anger from the political left and right, with the public little inclined to give it credit for helping rescue the financial system amid reports that bank executives and traders are reaping big bonuses while small businesses are starved for loans and millions remain out of work.

Criticism from liberals in the Democratic Party picked up last year after the administration, led by the Treasury secretary, Timothy F. Geithner, opposed both moves in Congress to tax bonuses and then an effort by the 27-nation European Union to impose a tax on financial transactions. Mr. Geithner said such taxes would be passed through to customers or circumvented.

Administration officials insist that big banks will not be able to pass on the costs of the proposed fee to their customers without risking a loss of market share to financial institutions that are not subject to the tax.

The chairman of the Financial Services Committee, Barney Frank of Massachusetts, praised Mr. Obama for trying to recoup the money before 2013. “The TARP program has been both more successful and less expensive than many critics feared,” Mr. Frank said, “and that allows us to move quickly now to repay the American taxpayer.”

Administration officials say the tax has been under consideration since August, when the administration began planning for the budget that Mr. Obama will send Congress in early February. He has been searching for ways to bring down budget deficits without retarding the economy’s fragile recovery.

The bank tax will require approval by Congress. With lawmakers likewise facing populist sentiment against both Wall Street and deficits in this midterm election year, the chances of some sort of tax becoming law are considered good. Some Democrats in Congress already have proposed a similar levy. Republicans have been somewhat muted in their criticism, and the White House believes it has them in a box in which opposition to the tax will be seen by the public as support for fat-cat bankers.

The delays inherent in the legislative process, however, could give the banking lobby time to muster a formidable opposition especially in the Senate — just as the industry has been able to stall and weaken the administration’s initiative to tighten regulation of the financial system.

Mr. Obama alluded to that opposition, saying the financial industry is “locking arms with the opposition party to stand in the way of reforms to prevent another crisis.”

But in that legislative fight and others, smaller community banks — not big banks — are the more influential force in Congress given their presence in nearly every member’s district. By targeting big banks for the tax, the administration may have split the banking lobby, neutralizing the smaller banks’ lobby and leaving the less popular big banks on their own.

Lobbyists for big banks are mobilizing. “TARP was a positive boost to the economy and the government and taxpayer are seeing a positive return on their investment,” Steve Bartlett, the former Republican congressman who is chief of the Financial Services Roundtable, which represents the largest banking, insurance and investment companies, said in a statement. “This tax is strictly political.”

The big banks and their supporters point out that any losses to taxpayers from the bailout are expected from money paid to rescue Chrysler and General Motors and the insurance giant American International Group, and from a program to help troubled homeowners avert foreclosures. The payouts for auto companies and housing programs were part of expansions of the bailout program in 2009.

The A.I.G. bailout, however, did benefit big banks because some of the same banks that received government money also received full payment for their complicated financial trades with the insurance company.

Administration officials said that the automakers as well as the housing finance giants Fannie Mae and Freddie Mac, both of which are under government conservatorships, are not in a financial position to be taxed to recover taxpayers’ losses.

White House officials declined to name the firms that likely would be subject to the tax aside from A.I.G. But the 50-odd firms, which include 10 to 15 American subsidiaries of foreign institutions, would include Goldman Sachs, JPMorgan Chase, General Electric’s GE Capital unit, HSBC, Deutsche Bank, Morgan Stanley, Citigroup and Bank of America.

The tax, which would be collected by the Internal Revenue Service, would amount to about $1.5 million for every $1 billion in bank assets subject to the fee.

According to the official, the taxable assets would exclude what is known as a bank’s tier one capital — its core finances, which include common and preferred stock, disclosed reserves and retained earnings. The tax also would not apply to a bank’s insured deposits from savers, for which banks already pay a fee to the Federal Deposit Insurance Corporation.

The administration’s objective in excluding a bank’s equity and insured deposits is to tax just the holdings that relate to risk-taking.

Under the law that created the bailout fund by the Bush administration, the president was required to seek recovery of losses by 2013. An administration official said that Mr. Obama and Mr. Geithner “feel strongly that there was no reason to wait.”





Eric Dash contributed reporting from New York.