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What happened to the bank tax?

With Congress back this week, battle lines are being drawn over taxes. Just don't expect anyone to mention the bank tax.

Back in January, Democrats thought the tax would play well with voters, especially if they could portray their Republican opponents as defending Wall Street. President Obama proposed hitting large banks by taxing their liabilities at a rate of 0.15 percent.

During the financial reform debate, there was at one point a $19 billion bank tax included the bill, but Senate Republicans balked and the tax was dropped.

Then when it looked like Congress was finally on the verge of approving the financial regulation bill, Obama pressed lawmakers to next set their sights on passing a bank tax.

But Democrats may have overestimated how much political support existed for such a tax. The signing of the Dodd-Frank bill "sucked the oxygen out of the room," as one lobbyist said to me. The focus shifted to how to create jobs and keep the deficit in check -- and now how to deal with the expiring Bush tax cuts.

Lobbyists also have been quick to point out that most banks have been paying back TARP funds, undercutting Obama's stated reason for the tax in the first place -- "to recover every single dime the American people are owed."

At this point, it looks like there are not many political points left to score for going after Wall Street, even though Americans like the financial overhaul. In fact it's the only one of the five major accomplishments by Congress that gets a thumbs up from more than half of those polled by Gallup.

Meanwhile European Union finance ministers are still kicking around the bank tax idea, according to this story by the Wall Street Journal's Charles Forelle. But they're split on what to do, making it unlikely anything will happen on this front anytime soon.

By Jia Lynn Yang  |  September 14, 2010; 9:30 AM ET
Categories:  Corporate taxes , Financial regulation  
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