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Breaking down the ‘Bank Tax’…

January 15, 2010

So let me get this straight Mr. President, your plan is to charge big banks a fee, known to most people, as a tax, because they needed to be bailed out? So you gave them taxpayer money, some pay it back, some haven’t, now you’re going to tax them to recoup the money you haven’t received? I’m hoping my assumptions aren’t correct. But let’s go through this little plan of yours…

From the Treasury:

Financial Crisis Responsibility Fee

Today [1/14/09], the President announced his intention to propose a Financial Crisis Responsibility Fee that would require the largest and most highly levered Wall Street firms to pay back taxpayers for the extraordinary assistance provided so that the TARP program does not add to the deficit. The fee the President is proposing would:

* Require the Financial Sector to Pay Back For the Extraordinary Benefits Received: Many of the largest financial firms contributed to the financial crisis through the risks they took, and all of the largest firms benefitted enormously from the extraordinary actions taken to stabilize the financial system. It is our responsibility to ensure that the taxpayer dollars that supported these actions are reimbursed by the financial sector so that the deficit is not increased.

Not every large bank took TARP money nor contributed to the financial world’s decay. And most of the big banks that needed the help have paid back the money they borrowed. But let’s tax ’em, so they learn their lesson. Yeah, since businesses NEVER pass taxes onto their customers.

# Responsibility Fee Would Remain in Place for 10 Years or Longer if Necessary to Fully Pay Back TARP: The fee – which would go into effect on June 30, 2010 – would last at least 10 years. If the costs have not been recouped after 10 years, the fee would remain in place until they are paid back in full. In addition, the Treasury Department would be asked to report after five years on the effectiveness of the fee as well as its progress in repaying projected TARP losses.

Goes into effect this summer and will continue for 10 years or more to recoup the costs? How about just making the banks that borrowed the money repay it?? Or solely taxing the banks that haven’t paid the money back until they do? But hey, what do I know?

# Raise Up to $117 Billion to Repay Projected Cost of TARP: As a result of prudent management and the stabilization of the financial system, the expected cost of the TARP program has dropped dramatically. While the Administration projected a cost of $341 billion as recently as August, it now estimates, under very conservative assumptions, that the cost will be $117 billion–reflecting the $224 billion reduction in the expected cost to the deficit. The proposed fee is expected to raise $117 billion over about 12 years, and $90 billion over the next 10 years.

$117 billion. That’s a lot of money, about 1/7th of total TARP money. I wish they would have broken it down to show where that responsibility actually lies. I’m sure someone will have something published this week expaining why the burden of the TARP repayment is solely on the top banks. (I know the reasons why they should pay are easily tossed out by the left, but by my calculations, haven’t they repaid their debt to society? Isn’t there a double jeopardy clause in the TARP punishment plan?)

# President Obama is Fulfilling His Commitment to Provide a Plan for Taxpayer Repayment Three Years Earlier Than Required: The EESA statute that created the TARP requires that by 2013 the President put forward a plan “that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt.” The President has no intention of waiting that long. Instead, the President is fulfilling three years early his commitment to put forward a proposal that would – at a minimum – ensure that taxpayers are fully repaid for the support they provided.

Nothing to see here except a big pat on the back to Obama for doing something three years early.

# Apply to the Largest and Most Highly Levered Firms: The fee the President is proposing would be levied on the debts of financial firms with more than $50 billion in consolidated assets, providing a deterrent against excessive leverage for the largest financial firms. By levying a fee on the liabilities of the largest firms – excluding FDIC-assessed deposits and insurance policy reserves, as appropriate – the Financial Crisis Responsibility Fee will place its heaviest burden on the largest firms that have taken on the most debt. Over sixty percent of revenues will most likely be paid by the 10 largest financial institutions.

A few thoughts here, while it sounds all well and good, because lets face it, those dirtbags deserve it. But here’s the thing, if you’re a bank like say…CitiBank, who would almost surely qualify for the tax, who received TARP funds then REPAID them, you will again be taxed. But the problem isn’t that the bank gets taxed twice, the tax payers are the ones that are getting screwed, twice. There’s nothing stopping those banks from passing the “fee” onto you when you get your loan, in fact, that’s what they’re going to do. Buuuuut there’s more:

How the Fee Would Work

While more complete details of the proposed Financial Crisis Responsibility Fee will be released in conjunction with the President’s budget, the basic outline of the fee is as follows:

Of course, don’t put it in regular English for us, toss it into his budget with some grabbled mess of something that may or may not resemble the English language. For the record, I don’t trust the “Basic outline” line. Have you ever made a basic outline? Does your end product ever resemble the original outline? Yeah, didn’t think so. Moving on….

Levied on Only the Largest Financial Firms with the Most Leverage

Yeah…cuz if they have any leverage, we better make sure we tax the hell out of it!

Applied Only to Firms with More Than $50 Billion in Consolidated Assets: The fee would only be applied to firms with more than $50 billion in consolidated assets. No small or community bank would be covered by the fee.

No small or community bank. Did you hear that? Good. But what about all those smaller banks that took TARP money and haven’t repaid it? You know those with less than $50 billion in assets? Yeah, that’s right, we can’t tax them, that would be unfair. But those big banks, the ones that have repaid their TARP money, “yeah, we’re gonna get those guys! The American people will probably support it, maybe, kinda….*shrug*” then Geithner scurries back to his cave to find his precious.

Fee Would Cover Banks and Thrifts, Insurance and Other Companies That Own Insured Depository Institutions, and Broker-Dealers: Covered institutions would include firms that were insured depository institutions, bank holding companies, thrift holding companies, insurance or other companies that owned insured depository institutions, or securities broker-dealers as of January 14, 2010, or that become one of these types of firms after January 14, 2010.. These institutions were recipients and/or indirect beneficiaries of aid provided through the TARP, the Temporary Liquidity Guarantee Program, and other programs that provided emergency assistance to limit the impact of the financial crisis.

First thing that caught my attention here was, “or that become one of these types of firms after January 14, 2010” I don’t know, maybe I’m a little “conspiracy theory” here but doesn’t that pretty much tell business that you better not change or grow for the next 10-12 years because if you do, you’ll be forced to pay this fee too. Or perhaps I’m reading this wrong. I’m no Timmy G., so what do I know?

Both Domestic Firms and U.S. Subsidiaries of Foreign Firms Subject to the Fee: The fee would cover the liabilities of all firms in these categories organized in the U.S. – including U.S. subsidiaries of foreign firms. Operations of U.S. subsidiaries of foreign firms in the areas cited above would be consolidated for the purposes of the $50 billion threshold and administration of the fee. For those firms headquartered in the U.S., the fee would cover all liabilities globally. The Administration will also work through the G-20 and the Financial Stability Board to encourage other major financial centers to adopt comparable approaches.

Say whaaaaaaaaat? Not only are Americans being penalized, but also those firms in other countries that are subsidiaries of American companies. So not only are AMERICANS being taxed, Obama is gonna tax the world!! (Ok, I realize that’s a bit extreme but let’s be realistic here…) The fact that our government is going to be “encouraging” other countries to do the same thing? Um…world financial police? Pass.

Fee Assessed at Approximately 15 Basis Points (0.15 Percent) of Covered Liabilities Per Year

That comes out to $1,500 per million, in case you care.

* How Liabilities Subject to the Fee Would Be Determined: Liabilities subject to the fee would be defined as:

Covered Liabilities = Assets – Tier 1 capital – FDIC-assessed deposits (and/or insurance policy reserves, as appropriate)

Now, I’m not BIG on the bank lingo, but from what I gather is that this tax is on pretty much anything but debt.

Exempting FDIC-Assessed Deposits and Insurance Policy Reserves As Appropriate: The fee will exempt FDIC-assessed deposits because they are stable sources of funding covered by deposit insurance and already subject to assessment. Similarly, the base for the fee would be appropriately reduced based on insurance policy reserves.

Ok, maybe I’m not “econ-savvy” enough to understand this, but didn’t it say above that “FDIC-assessed deposits” were included in the “Liabilities subject to the fee” list, or am I too tired to read this properly?

How the Fee Would Be Assessed: Covered liabilities would be reported by regulators, but the fee would be collected by the IRS and revenues would be contributed to the general fund to reduce the deficit. The Administration will also work with Congress and regulatory agencies in order to design protections against avoidance by covered firms.

They’re basically saying that the “fee” is being collected by the IRS, which usually collects taxes. The money isn’t going to be returned to the taxpayers who funded the plan, it’s going to the general fund to reduce the deficit…yeah, that’s going to bode well with taxpayers that you claim are the ones who are benefiting from this “fee”. In Gibbs’ briefing yesterday he kept repeating that the fee was to make the “taxpayers whole”. If that was REALLY the case, we’d get an actual check in our pockets, but instead all we get is a second tax.

Reality is, with this whole mess, the government isn’t trying to “repay the taxpayer” they’re trying to gain more control of the banks, for the next 10+ years! Since those evil banks were so bad that they deserved billions of dollars of taxpayers money. Never mind that most of the major banks, those that took the most TARP money, have repaid their debt to the country and are trying desperately to get out from under the thumb of the government.

If the banks have tried to right their wrongs, why should they be punished again? If someone hits my car in the Walmart parking lot, and I take it in to get it fixed, pay for it out of MY pocket because the guy was short on cash. But then the guy who hit me sends me a check to reimburse the cost of the repair, I’m pretty sure, by all laws that exist, we’re even. Done deal. But NOT if you’re the government. The government would be charging the guy extra money for an inconvenience fee, the cost of a car detail, a year’s worth of car washing, PLUS gas, all while saying, “Hey, that’s the least you can do! You CAUSED this problem in the first place.”

All that said, I’m not usually sympathetic to these “TARP banks”. They made their beds, now they have to lie in it. But when their “punishment” is going to be passed onto taxpayers it’s NOT ok.

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5 Comments leave one →
  1. RoaringRepublican permalink
    January 15, 2010 8:44 pm

    But, but, but don’t you want your money back??? Who cares who pays for it or why! These are heartless evil people and if it takes heartless evil people in Washington to get our money, well TS.

    Teasing of course, isn’t it all just insane? Every day I feel like I am waking up in every dystopian future novel ever written.

    • January 15, 2010 9:15 pm

      What amazes me the most about this is the fact that Obama (or Gibbs, or someone, can’t remember exactly who) actually said that by taxing the top banks that it will help little banks stay in business by keeping consumers away from the ones on which this tax will be imposed. UM…WHAT!?!?

  2. RoaringRepublican permalink
    January 16, 2010 9:39 am

    Are you kidding me? That is amazing right there. I swear Atlas Shrugged is more prophecy than literature.

    I wrote about this on my blog, but in short the obscene layoffs, massive fees & outrageous interest are the only reason banks have been able to repay their loans. It isn’t new business. Now these taxes will just get further passed onto consumers and result in more layoffs.

    So the American ppl paid the banks to fire us and overcharge us. Now we are taxing them to do it again. Great plan.

    • January 17, 2010 11:35 am

      I tried to find the story where I read that, I thought it was on bloomberg,but apparently not. It’s driving me nuts that I can’t find it. See what happens when I don’t bookmark everything I read??

      Yeah I read your blog this morning, and wrote an EPIC comment.

      This “tax and retax” play by the Obama admin is simply ridiculous. But just like Pawlenty in MN, if you call it a “fee” technically it isn’t a tax. (Yes, T. Paw REALLY said that, so lets not vote for him for president either.) And the people of MN bought it. So…yes, people are really dumb enough to buy the “fee/tax” bait and switch plan. Scary.

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  1. New Report: TARP Is Not ‘Too Big To Fail’. « Critical Politics

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