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.

This week, Wall Street firms will begin to pay out their annual bonuses, which will reportedly “rival those of the boom years.” According to the New York Times, “industry executives acknowledge that the numbers being tossed around — six-, seven- and even eight-figure sums for some chief executives and top producers — will probably stun the many Americans still hurting from the financial collapse.”

During the first nine months of 2009, Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley set aside a combined $90 billion for compensation, and some analysts expect the total compensation pool at Wall Street banks to hit $200 billion.

These staggering totals led Citigroup founder and former CEO John Reed — who has expressed regret at his role in dismantling the Depression-era Glass-Steagall law — to slam the banks, saying that they “would not fully regain the public’s trust until banks scaled back bonuses for good”:

“There is nothing I’ve seen that gives me the slightest feeling that these people have learned anything from the crisis,” Mr. Reed said. “They just don’t get it. They are off in a different world.”

So far, it doesn’t seem that any banks are taking Reed’s words to heart. In an attempt to head off some criticism, many large banks are planning to issue compensation packages that include more stock and less cash than in previous years. But according to the Wall Street Journal, even that step had led bankers to “complain” that they will be “short of cash.” American bankers are also whining about a British requirement that bankers working there defer 60 percent of their pay packages for at least three years.

The real problem here, of course, is that the banks are returning to huge paydays when their profits have come courtesy of the government programs that kept them from collapsing. “Those funds helped Wall Street financial institutions, deemed too big to fail, survive their own misdeeds,” wrote Prof. Peter Morici. “Bankers used this cash, much obtained at near zero interest rates, not to make loans for homes and businesses but to trade derivatives, currency futures and other exotic contracts.”

Goldman Sachs is trying to deal with its public image problem by “expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity.” That’s nice, I suppose, but it doesn’t at all address the structural problems with the compensation packages.

Instead, investment firms should be looking at ways to alter their pay packages to appropriately acknowledge how they were able to make so much money. Of course, I’m not holding my breath for that to happen, which means that some government action on taxing Wall Street may be in order.