The Wall Street Journal reported today that “the U.S. and European governments are moving toward a consensus on taxing large banks to cover the cost of any future bailouts rather than asking taxpayers to foot the bill.” This is welcome news, as various iterations of the bank tax have been kicking around for months — from the Obama administration’s proposal to recoup TARP funds via a bank charge to the $150 billion resolution authority tax included in the House of Representatives’ regulatory reform bill — with nothing officially becoming law.
But now that other countries are starting to voice their support, it looks more and more likely that such a tax will come into being, especially because wider implementation would alleviate the concern that companies would simply pick up and leave if any country were to impose a tax unilaterally. In fact, “officials in the U.S., Europe and the IMF say the bank-tax concept has gained so much momentum that it is likely to be on the agenda when of the Group of 20 industrial and developing nations meet in Canada in June.”
Of course, the banking industry is dead set against any form of bank tax coming into effect. “Global policy makers should be very cautious about advancing any public policy that removes capital from the system — be it in the form of a tax, a fee or otherwise,” said Rob Nichols, president of the Financial Services Forum, which represents the very biggest financial firms. But the real barrier to implementation is conservatives in Congress, who continue to go to bat for the banks, actively selling themselves as defenders of the regulatory status quo.
Remember, Republicans in Congress refused to applaud the bank tax during the State of the Union in January. They’ve taken to mischaracterizing the House’s resolution fund as a “permanent bailout fund,” which even CNBC’s right-wing anchor Larry Kudlow has said is nonsense. Sen. Chuck Grassley (R-IA), the ranking member of the Senate finance committee, even decided to claim victory over a Congressional Budget Office analysis of the tax that essentially confirmed what the tax’s advocates have been saying.
There are plenty of good economic reasons for instituting a bank tax, including leveling the playing field a bit between large and small banks and protecting taxpayers from the cost of the future bank failures. Today, Federal Deposit Insurance Corp. Sheila Bair lent her support to the tax, saying that “it’s really a taxpayer protection fund.” “It will set up a mechanism going forward that doesn’t put the taxpayer at any risk for resolving one of these very large entities if they get in trouble again,” she said. Senate Finance Committee Chairman Max Baucus (D-MT) will reportedly begin hearings on the bank tax next month.
So where will conservatives come down on this? If other countries move ahead with similar plans, the competitiveness argument goes out the window, leaving precious little in the way of opposition that doesn’t amount to straight-up shilling for the very largest financial firms.