Banks as Tax Collectors

Here’s the ruse (emphasis added):

President Obama expressed confidence Saturday that lawmakers would approve his proposed tax on banks to recover bailout money, despite opposition from Republicans and the financial industry.

And here’s the reality (emphasis added):

The proposed 0.15 percent tax would last at least 10 years and generate about $90 billion over the decade, according to administration estimates. It would apply to about 50 of the biggest banks, those with more than $50 billion in assets, and include many institutions that accepted no money from the $700 financial industry bailout.

And here’s the president’s faulty premise:

Obama challenged those who say banks can’t afford the tax without passing the costs on to shareholders and customers.
“That’s hard to believe when there are reports that Wall Street is going to hand out more money in bonuses and compensation just this year than the cost of this fee over the next 10 years,” he said. “If the big financial firms can afford massive bonuses, they can afford to pay back the American people.”

The financial firms could afford to do lots of things with their profits, but what they do typically rewards those in charge, especially those responsible for the strategies that generated their revenue in the first place. Taxing all banks in order to pay for handouts to a few of them doesn’t change the industry dynamics around competition for top talent. That is to say that the banks will look for other areas to make up for losses from taxation rather than the pay scales of those whom they credit for their success, largely by passing them on to customers.
The bigger point, though, is that this plan will suck $90 billion directly out of the global economy, with the focal point of the United States. For example, consider some number crunching from the Providence Business News:

Citizens Financial Group Inc.’s parent company, Royal Bank of Scotland Group Plc, may owe $625 million a year if Congress passes a new tax on financial institutions proposed by President Barack Obama.

From where does Mr. Obama believe that money is going to come? Out of the bonuses of executives? If one believes the narrative of the left, bank executives are immorally greedy connivers. From a rightward perspective, the bonuses are the price that the market has placed on their talent (hugely distorted upward through the meddling of government, to be sure). In neither case are financial leaders likely to simply accept an indirect tax on their income.
As I’ve said before, if one wishes to curb outrageous pay and bonuses, the best method would focus on increasing competition, making excess unsustainable. Taxation favors incumbency, exacerbating the underlying problem.

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Patrick
Patrick
11 years ago

Wait, Obama says that he wants to tax banks to get the bailout money back and that banks can afford this because they’re giving bonuses?
1. I thought when the banks got the bailout, it was a loan. When you get a loan, you pay it back. You don’t pay a tax. Or did Congress make some sketchy loans that aren’t going to get paid back? Isn’t that what got us in this mess in the first place? Isn’t that what the banks were being criticized for?
2. Which banks are not repaying their bailout funds but are giving bonuses? I don’t think they are one in the same. Goldy might be giving bonuses but they repaid all their bailout money, never mind the fact that they didn’t want it in the first place.
Isn’t this like people taking out a mortgage and then taxing everyone to get the money for the mortgages back? Does that make any sense? Oh wait, Obama’s doing that now too. Never mind…

jp
jp
11 years ago

I made the mistake of reading the projo.com LTE section this morning – someone actually wrote in that the government should “confiscate” banker bonuses and send the money to Haiti. Scary.

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