Frigid temperatures this weekend prompt cold weather advisories

MPR News helps you turn down the noise and build shared understanding. Turn up your support for this public resource and keep trusted journalism accessible to all. 

Turn Up Your Support

Mindful of soaring deficits and an anti-Wall
Street mood, President Barack Obama wants a new 10-year tax on the
country's largest banks to cover a projected $117 billion shortfall
in the government's financial crisis bailout fund.

      The president planned to propose Thursday a levy of 15 basis
points, or 0.15 percent, on the liabilities of large financial
institutions to make sure every dollar spent from the $700 billion
Troubled Asset Relief Program to rescue Wall Street firms, auto
companies and mortgage holders is either repaid or paid for.
Congress would have to approve the tax.


      A senior administration official said the tax, which officials
are calling a "financial crisis responsibility fee," would apply
only to financial companies with assets of more than $50 billion.
Those firms - estimated to amount to about 50 institutions - would
have to pay the fee even though many did not accept any taxpayer
assistance and most others already paid back their government
infusions.


      The official said banks could pay for the tax by tapping their
generous executive bonus pools. The administration official
described the plan in a conference call to reporters Wednesday
evening on the condition of anonymity because it had not been
officially announced.


      At issue is the net cost of TARP, the fund initiated by the Bush
administration to help financial institutions get rid of toxic
assets. The fund has since evolved, helping not only the banking
sector, but also autos and homeowners.


      Insurance conglomerate American International Group, the largest
beneficiary with nearly $70 billion in bailouts, would have to pay
the tax. But General Motors Co. and Chrysler Group LLC, whose $66
billion in government loans are not expected to be fully repaid,
would not be subject to a tax.


      Bankers did not hide their objections.

      "Politics have overtaken the economics," said Scott Talbott,
the chief lobbyist for the Financial Services Roundtable, a group
representing large Wall Street institutions. "This is a punitive
tax on companies that repaid TARP in full or never took TARP."


      Jamie Dimon, chief executive of JPMorgan Chase & Co., speaking
to reporters Wednesday before details of the tax were known, said:
"Using tax policy to punish people is a bad idea."


      "It would be very hard for the industry to pay for the auto
companies," Dimon added. "I mean, at one point you have to be a
little fair."


      The plan serves Obama in two ways - it capitalizes on public
antipathy toward banks blamed for causing the crisis, and it
addresses a desire to show progress toward reducing record federal
deficits.


      The administration official said Obama wanted to accelerate a
requirement in the existing TARP law that requires the president to
seek a way to recoup unrecovered money in 2013, five years after
the law was enacted.

      The administration is also rejecting Dimon's argument that banks
should not pay for shortfalls from the auto industry. The official
said the thinking is that major financial institutions were both a
significant cause of the crisis and major beneficiaries of the
government's rescue efforts and should thus bear the brunt of the
cost.

      For banks, the official said, the tax would not affect their
biggest liability - insured deposits, which already are assessed by
the Federal Deposit Insurance Corp.


      The bank levy would generate an estimated $90 billion over 10
years. It could remain in place longer, however, if needed to
eliminate the shortfall. The official said that if the shortfall
was eliminated within a decade, the tax would still remain in place
for the full 10-year minimum.


      Banks have been paying back their infusions. Any shortfall would
probably come from money used to prop up AIG, to support GM and
Chrysler through bankruptcy protection and to assist homeowners
with their mortgages.


      So far, the Treasury has given $247 billion to more than 700
banks. Of that, $162 billion has been repaid and banks have paid an
additional $11 billion in interest and dividends.


      In Congress, the idea was receiving a predictable partisan
reaction, with Democrats embracing it and Republicans rejecting it.


      "Look, the financial institutions collectively, particularly
the larger ones, caused problems by their errors - their errors of
judgment, their irresponsibility, in some cases their skating
around dishonesty," said House Financial Services Committee
Chairman Barney Frank, D-Mass.


      "I think it is entirely reasonable to say that the industry
that, A, caused these problems more than any other and, B,
benefited from the activity, should be contributing," he said.


      Republican Rep. Jeb Hensarling of Texas, a member of Frank's
committee, ridiculed the idea. "To think that banks will loan more
money if you tax them is beyond economic ignorance," he said.

Gallery

Politics and Government News

Mindful of soaring deficits and an anti-Wall
Street mood, President Barack Obama wants a new 10-year tax on the
country's largest banks to cover a projected $117 billion shortfall
in the government's financial crisis bailout fund.


Obama seeks tax on banks; calls bonuses obscene

Go Deeper.

Like this?