About The New Bank Tax

The newly-proposed tax on banks, ostensibly to recoup TARP losses, is surely one of the worst ideas to come out of any administration and Congress.


There are so many flaws in the tax it's hard to know where to begin. But I'll try.


First, it seems the wrong way for Congress to now decide how not to have lost money on the bill they so hastily passed over a year ago. Why didn't they, or the Treasury which pushed the legislation, prescribe a method, ex ante, to recoup losses before banks and all other TARP recipients were allowed to operate normally?

To now, after some banks have met the bill's conditions and repaid forced borrowings, with interest, toss in an added tax just because the TARP was badly conceived and administered, is hardly fair.

By the way, is it even Constitutional to force a bank which did not want TARP money to take it, demand onerous repayment terms, and then also tax its profits because the TARP wasn't well-planned from the outset?

Why exempt GM and Chrsyler? They took TARP funds. And why exempt Fannie and Freddie, which were actually the prime movers in the recent financial sector meltdown?

None of it would have occurred had Democrat Representative Barney Frank, Conneticut Democrat Chris Dodd, and others in Congress, forced, and allowed, the two GSEs to underwrite ever-more marginal mortgage loans to risky borrowers. Once securitized by Fannie and Freddie, what investment and commercial banks did was tame by comparison.

If the new tax is supposed to be a "Financial Responsibility" tax, then Fannie and Freddie should be paying a disproportionately high share of it.

Finally, this tax won't fall, ultimately, on any institutions.

Apparently the current administration's economists were all absent the day their long-ago professors taught the economic theory of tax incidence.

Taxes are never paid by companies, only collected. Consumers will pay this tax through reduced access to financial services, or more expensive services, or added fees and penalties.

But be assured, no bank will actually pay the tax on its own.

And, thus, the entire notion of the tax, and its arrogant name, a “financial crisis responsibility fee,” is phony.

As always, its the consumers that will pay this tax and, thus, ultimately for losses from a poorly-designed and implemented TARP program.