Bank-robbing tax lets 'bad guys' go free
Created on March 3, 2010
By Ken McIntyre
Should a new consumer agency that keeps an eye on banks and financial services be part of an even more powerful Federal Reserve Board?
As negotiators get closer on this and other compromises allowing Senate action to tighten the reins on Wall Street, one supposedly populist aspect of the effort still doesn't make sense.
And that's the bank tax.
It's worth repeating the initial observation by James Gattuso, an expert on government regulation at The Heritage Foundation, about President Obama's proposed bank tax immediately after his State of the Union address.
"President Obama tonight called for a new tax on banks and other large financial institutions, 'a modest fee,' the president said, 'to pay back the taxpayers who rescued them in their time of need.' That sounds great, but in truth, the new tax would do nothing of the kind," Gattuso blogged. "Mr. Obama knows that almost every major bank has paid back their bailout funds, with interest. Taxpayers made substantial profits on those repayments."
But "most of the companies that still owe billions to taxpayers, including Fannie Mae and Freddie Mac, and auto firms GM and Chrysler would not be subject to the tax," Gattuso added. "In short, Mr. Obama would tax those that have paid back taxpayers, and exempt those who have not."
(The point is illustrated in the Heritage chart above, which may be reproduced online or in print.)
Gattuso and Heritage colleague David John caution that other regulatory approaches to financial services would bear bad fruit.
"In fact, major parts of the president's proposals would only guarantee additional future bailouts," they note, "by treating some companies as 'too big to fail' and creating a resolution process for troubled financials that is so open-ended that it could be used in almost any situation. The better choice ... would be to amend U.S. bankruptcy law to create an open, expedited bankruptcy process."
Ken McIntyre is the Marilyn and Fred Guardabassi Fellow in Media and Public Policy Studies at The Heritage Foundation.
Recent Heritage commentary and analysis on financial regulation include:
Can the Fed Nip Inflation in Time?
President Obama's War on Banks
The Bank Tax: Call It Irresponsible
Volcker Rule: No Way to Reduce Risk