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The new bank tax, and beyond

The White House proposed its "fee" on the 50 or so largest banks today. As Felix Salmon summarizes, it's "a 0.15% tax on bank liabilities excluding deposits (which already come with an FDIC fee attached). It would be paid by roughly 50 firms, including GE Capital, and would raise something on the order of $90 billion over 10 years. That’s an average of $180 million per firm per year."

If what you're trying to do is recoup the TARP losses, this is a smartly designed tax. But we should be more ambitious than than that. The financial industry's share of the national dollar has grown even as the tax laws dictating their contribution to the American economy have weakened. Under George W. Bush, of course, tax rates on the richest Americans fell precipitously. And under Bill Clinton, the tax rate on capital gains fell from 28% to 20% (and then Bush brought it down to 15%). Meanwhile, Wall Street got richer and richer and richer...

The tax Obama is proposing will raise $90 billion over 10 years, and refund the direct losses taxpayers suffered in the bailout. But that wasn't the only cost of the financial crisis. The recession -- which has cost the federal budget far more -- was also triggered by Wall Street. We're not even here, not by a long shot.

But this isn't about getting even. It's about good policy. Restoring the 1996 tax rates on the rich, and on large capital gains, would improve the nation's finances without harming anything of value. It would raise far more than $90 billion and it wouldn't sunset after 10 years. The tax Obama is proposing is not ideal from the point of justice -- Wall Street owes us far more than that -- but it's also not ideal from the point of federal finances and tax equity.

By Ezra Klein  |  January 14, 2010; 11:32 AM ET
Categories:  Financial Regulation , Taxes  
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One thing I didn't realize is the government is actually *required* to recoup TARP losses. So it's not like Obama and Geithner are just taking a principled stand against bankers.

These people make so much money (I have a friend--not even a marquee name--who no longer flies commercial!) that $90 billion over 10 years seems trivial.

The problem is for the bigger things you mentioned (raising the capital gains tax, for example) we have to be on the same page as other countries or the money just flows to the tax havens.

Posted by: bmull | January 14, 2010 11:59 AM | Report abuse

I dont know why Ezra Klein would run down the idea of getting even. We richly deserve revenge on these parasitic Wall Street banks and oughta affirmatively go after it in any way possible, including:

1. Raising the capital gains tax back to 28% if not higher
2. Creating a new financial transactions tax
3. Passing this new "financial crisis responsibility fee" on the largest 50 financial firms.

Nothing matters more than this. The British have moved in some of these areas already, and we oughta join them. And if I'm supposed to believe somehow that Goldman Sachs will flee to Dubai we can deal with that from a regulatory standpoint in the future, the same as we chased down these tax cheats hiding in UBS.

We can make the whole world unsafe for these malevolent banksters!!!

Posted by: zeppelin003 | January 14, 2010 12:07 PM | Report abuse

Ezra - The cause of the recession is far from settled. You may claim it's Wall St. I claim it's the Fed's monetary policy. Time will tell. But to blithely state that Wall St caused the recession is very premature.

Posted by: MBP2 | January 14, 2010 12:24 PM | Report abuse

Every time OBAMA opens his mouth about taxing the banks or placing a fee on CREDIT CARD COMPANIES the HARD WORKING TAX PAYING AMERICANS get it stuck. The banks will find yet another way to get back that tax by placing yet MORE FEES ON US. the last time he made the credit card companies take back some of those outrageous fees they were charging OUR CREDIT CARD RATES WENT WAY UP. Same with this BANK TAX. No bank or credit card company is NOT GOING TO GET THAT BACK one way or another. Maybe he should INCLUDE in his ranting that THE BANKS CANNOT RECOUP THEIR TAXES by imposing a fee on the PUBLIC. I wish he would just SHUT UP.

Posted by: itscc721 | January 14, 2010 2:31 PM | Report abuse

$90B over ten years? $90B per year would be closer to exacting the payback these "too big to care" banks deserve for cratering our economy. Parents who want their children to prosper financially, if not morally, just whisper this magical word in their ear when it is time to choose a career, "Banking!"

Posted by: optimyst | January 14, 2010 2:53 PM | Report abuse

One problem, Mr. Klein. It's the rich who inhabit Congress (is there a single senator who is not a millionaire?). They will not tax themselves. They will continuously tax "the little people" as Leona Helmsley so famously said (hey, at least she had the guts to tell the truth). It's not just the Republicans-- the Armani liberals are passing this very expensive health care bill, the largest entitelment program to date, just after they allowed the estate tax to expire. They will tax so-called "Cadillac" health care plans--plans that many middle-class people have as part of our employment compensation program--to pay for their liberal world order (i.e., those of us who worked our way out of poverty must now work harder to support the irresponsible high-school dropouts who have five kids with five partners).

Posted by: pepperjade | January 14, 2010 2:56 PM | Report abuse

I'm perfectly happy to see the banks who took TARP funds have to repay them with interest. That was the deal. However, it seems the deal now isn't good enough for the White House who wants to change its terms. Over half of the TARP funds have been repaid.

Frankly, this isn't a tax. It's a punishment that includes institutions that didn't necessarily behave badly. It's the political equivalent of sending the entire class to detention because the Bully Banker did something. I'd suggest that we should expect better from those elected to public office, but that got left behind long ago.

Any of us who've ever been on a driving vacation with family with know the frustration: November elections, are we there yet?

Posted by: riskexcellence | January 14, 2010 3:00 PM | Report abuse

It's much easier to tax the little guys. WE don't have the money to hold it up in court for 20 or 30 years!

Posted by: weslen1 | January 14, 2010 3:05 PM | Report abuse

This is to zeppelin003 and all who hope for a burdensome capital gain tax increase.

I hope that you realize the capital gains tax increase you advocate will hit retirees when they sell their homes in order to fund their retirement. Additionally, the poor tattered taxable savingsa acconts will also fall under this burden. Just to remind that there are unintended consequences.

Second additionally, there was at one time a 90% captal gains tax. I am not so sure that this encouraged anybody to start a new business and employ the also tattered unemployed. Remember that the "unemployed" is annualy enlarged by the departure from academia of the next generation.

In the past the next generation has been newly employed by the optimism of the previous generation hoping to benefit by that new employment. Selfish (?) but accurate.

Stolidman99 I have been here for a while and remember the same arguments inthe 1930s. Nothing new under the sun.

Posted by: stolidman | January 14, 2010 3:58 PM | Report abuse

It seems only fair that the banks pay back what they received and with interest for the time they had the money. Anything beyond that is revenge or punishment. Yes, the banks made bad loans that were at the heart of the financial problems, but Congress itself .... and Barney Frank and Chris Dodd in particular .... pressed the banks to make loans to those who couldn't afford them. Obama's agenda is becoming clearer everytime he holds a press conference.

Posted by: johnwelsh2 | January 14, 2010 4:20 PM | Report abuse

"I hope that you realize the capital gains tax increase you advocate will hit retirees when they sell their homes in order to fund their retirement. Additionally, the poor tattered taxable savingsa acconts will also fall under this burden. Just to remind that there are unintended consequences."

There's nothing unintended about it. The way our system of taxation works is to extract from those who have to provide for the common defense and welfare of our society. So u bet its going to come out of retiree benefits, and not only that when the retirees take that eternal dirt nap I fully intend to have a death tax of nearly 50% or more!!

We have a country to run, and it takes money to run it. By necessity that money comes from its citizens.

Posted by: zeppelin003 | January 14, 2010 6:14 PM | Report abuse

Don't blame Preident Obama blame the senators and house menber who are on lobby lead ropes.

Posted by: theoldmansays | January 14, 2010 11:02 PM | Report abuse

long term earned bonuses backed by profits for stock holders is the american way. quarterly greedy bonuses with little to no stockholder return WE USE TO CALL THEFT I THINK WE NEED TO REPLACE MANY GREEDY CEO'S ANY CEO WHO TAKES A BONUSES AT THIS TIME.IS NOT A GOOD CEO ""PERIOD ""

Posted by: theoldmansays | January 14, 2010 11:54 PM | Report abuse

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