The plan, if approved by Congress, would levy the tax on up to 50 financial services companies based on the total size of their liabilities. White House officials estimates it will raise at least $90bn over the next decade and wrest back for the taxpayer the money given the banks as part of the $700bn Troubled Asset Relief Programme (TARP).
The thing is, the banks who will be taxed have pretty much already paid back the money they got under TARP. Only the biggest banks will have to pay and they have all, like Goldman\’s, Morgan, Citibank and so on, paid it back. There\’s even been a profit for the government in many cases.
Other people received money under TARP: GM for example and I think Chrysler. Now they have not paid it back nor are they ever likely to. And they will not be subject to the tax. So the tax will fall upon those who have already paid back and not upon those who will never pay back.
This might be good for the revenue but it\’s not a notably \”fair\” idea.
Oh, and the other two, where the government really is facing huge losses, Fannie Mae and Freddie Mac? Because their aid didn\’t come from TARP then they don\’t have to pay the tax either.
Now the idea of taxing more the larger the bank, in order to try and deal with the \”too big to fail\” problem isn\’t entirely stupid (although do note that Northern Rock was small by the standards of the market and yet that failure caused a system wide run. So \”too big to fail\” isn\’t really the only problem.).
But taxing those who didn\’t fail to pay for those that did, taxing those who have repaid their TARP to make up for those who never will, well, that\’s not so obviously unstupid.
Politically, sure, it\’s great: \”Taxpayers spent on the banks. Taxpayers get back from the banks\” works. But there\’s a very definite lack of discerning between which banks and companies got money and which are having to pay it back.
Just as one example, the Fed insisted that some banks who didn\’t need money took money: so as to not spook the markets by distinguishing between those banks which needed it and did not. But those who didn\’t need it are now being told to pay the extra tax.
Ah, but this has less to do with genuine financial management and more to do with political grandstanding…
some people say the tax isn’t to repay cost of loans under TARP, to repay the low cost of capital that an implicit state guarantee grants to too big to fail banks. On that note, this gotcha is the sort of thing you enjoy catching lefties out on, Tim.
missing ‘but it is’ after comma
update: even evil Republican Greg Mankiw endorses the tax