We Want Our Money Back

The President Proposes Financial Crisis Responsibility Fee

President Obama explains the proposed Financial Crisis Responsibility Fee that will ensure that the largest financial firms meet their obligations to repay American taxpayers for the assistance provided to Wall Street.

President Barack Obama is going after Wall Street stronger and harder than he did in his first year in office. Recently the Obama administration has proposed a new bank tax in order to recover the rest of the American people tax dollars that were invested in Wall Street as anger over Wall Street bonuses has gotten louder and stronger. The White House proposed its "fee" on the 50 or so largest banks and Felix Salmon summarizes, it's "a 0.15% tax on bank liabilities excluding deposits (which already come with an FDIC fee attached). It would be paid by roughly 50 firms, including GE Capital, and would raise something on the order of $90 billion over 10 years. That’s an average of $180 million per firm per year."

Now if what you're trying to do is recoup the TARP losses, this is a smartly designed tax. But we should be more ambitious than that. The financial industry's share of the national dollar has grown even as the tax laws dictating their contribution to the American economy have weakened. Under George W. Bush, of course, tax rates on the richest Americans fell precipitously. And under Bill Clinton, the tax rate on capital gains fell from 28% to 20% (and then Bush brought it down to 15%). Meanwhile, Wall Street got richer and richer and richer...

The tax Obama is proposing will raise $90 billion over 10 years, and refund the direct losses taxpayers suffered in the bailout. But that wasn't the only cost of the financial crisis. The recession -- which has cost the federal budget far more -- was also triggered by Wall Street. We're not even here, not by a long shot. But this isn't about getting even. It's about good policy. Restoring the 1996 tax rates on the rich, and on large capital gains, would improve the nation's finances without harming anything of value. It would raise far more than $90 billion and it wouldn't sunset after 10 years. The tax Obama is proposing is not ideal from the point of justice -- Wall Street owes us far more than that -- but it's also not ideal from the point of federal finances and tax equity.

Still, US subsidiaries of foreign banks like HSBC and Deutsche Bank will be taxed; it’s unclear whether foreign subsidiaries of US banks will be as well. The aim of the tax is to ensure that the entire TARP fund gets repaid in full — not just the money lent to the banks directly, but also the money lent to the banks indirectly, through the AIG bailout. The tax is not, however, designed to repay the cost of rescuing Fannie and Freddie which is a whole another story. Nonetheless, I like the way the tax is structured: it’s simple, and the liabilities-minus-deposits formula naturally puts more of the onus on investment banks than commercial banks. It also encourages banks to fund themselves with equity rather than debt.

Will the fee be passed on to bank customers? Well, it doesn’t apply to deposits, so retail banking customers shouldn’t be affected, but you never know. If they are, at the margin that might be no bad thing, if it encourages bank customers to move their money to small-enough-to-fail banks and credit unions. Critics of the tax are certain to focus in on the rhetoric surrounding the announcement, and to denounce it as politically-motivated populism. Which might even be true. But just because a policy is popular doesn’t necessarily make it a bad idea. And this one makes a lot of sense.

I am just pleased with the tone of President’s Obama’s announcement and the firm rhetoric he used toward the banks. Still, I won’t be completely satisfied until the new bank tax is paid and to a degree, I can’t help but wonder will the $90 billion over 10 years along what the banks paying what they borrowed from the government $700 billion TARP program be enough to pay us the American people back for all that was dealt to Wall Street. For now, I will wait to criticize not the Obama administration but our federal government and all the politicians who voted for TARP including candidate Obama at the time and majority of Democrats who pushed for it to pass.

For now though, the American people should rejoice that President Obama is finally being tougher with Wall Street than he was during this first year but let’s not fully celebrate until the bill is signed.

The President Proposes Financial Crisis Responsibility Fee

President Obama explains the proposed Financial Crisis Responsibility Fee that will ensure that the largest financial firms meet their obligations to repay American taxpayers for the assistance provided to Wall Street. January 14, 2010.