Politico reported today that the Obama administration is planning to unveil a bank fee in its next budget “designed to recoup some of the cost taxpayers incurred in the bailout”:
This will stop short of a financial transactions tax, and the administration has decided that a tax on compensation packages would be too easily evaded. The officials said the final approach has not been locked down. The chief goal is a fee that is not easily passed along.
The Wall Street Journal added these details:
One option discussed involves placing a fee on a bank’s liabilities, a number that theoretically represents the amount of risk a bank takes on, according to officials familiar with the matter. Another would be putting the fee on bank’s profits, as an approximation of their success and ability to absorb such a fee, these people said.
White House Press Secretary Robert Gibbs “declined to say whether the budget will include a new fee on banks,” but when asked “if there will be something specific in the budget that ensures the repayment of taxpayers” for the bank bailouts, Gibbs said, “that’s the president’s goal, yes.”
There is a lot of wisdom to crafting a bank fee along these lines, particularly one aimed at firms that, for all intents and purposes, are still “too-big-to fail.” My preferred approach is that which the House adopted in its regulatory reform debate: the fee goes toward building up a fund that would be used in the event that a failing financial firm needs to be dismantled. Once a sufficient fund is built up (the House set it at $150 billion), subsequent revenue could easily be put toward deficit reduction.
The economic upside of this is that Wall Street is just about the only place that it’s even mildly desirable to look for a revenue increase in the near future. As Michael Ettlinger wrote, financial services is “an industry that — with a huge amount of help from taxpayers — is now turning enormous profits…It’s also an industry that really does owe something to the rest of the country.”
Even former Merrill Lynch CEO John Thain, not exactly a paragon of banking virtue, said that banks can handle a “too-big-to-fail” fee. “You could actually charge them,” he said. “And the bigger they are, the more complicated they are, the more you charge them.”
All that said, the administration is continuing its maddening insistence on not considering a financial transactions tax. A minuscule tax on transactions would be a good way to raise revenue largely from Wall Street, and in a way that would not increase the cost of trading beyond what it was in the 70′s and 80′s (thanks to technological advances that have significantly decreased trading costs). Wall Street is going to great lengths to torpedo this idea, and I wish the administration would stop stepping all over what is a legitimate idea that could raise significant revenue.
Felix Salmon has more.