Obama to tax banks for financial chaos
15 January, 2010
In a bid to toughen up on Wall Street, the Obama administration next month will ask Congress to impose a new tax on big financial firms, arguing they have to pay for sending the world's financial system into chaos. President Barack Obama on Thursday proposed fees of 15 basis points on so-called high-risk transactions of big banks and financial institutions who derive profits from trades in derivatives and other complex financial instruments.
Under current law, the president must submit a plan to Congress to recoup the Troubled Asset Relief Program, or TARP, losses by 2013 so that the program does not add to the national debt. The administration, through current Treasury Department accounting, estimates TARP is running a deficit of $ 117 billion.
The tax, which would be collected by the Internal Revenue Service, would amount to about $ 1.5 million for every $ 1 billion in bank assets subject to the fee. The "financial crisis responsibility fee" is expected to raise $ 90 billion over 10 years by targeting the liabilities of banks with more than $ 50 billion in assets.
The measure is expected to affect about 50 firms, including roughly 35 US companies and 15 American subsidiaries of foreign firms. About 60 percent of the $ 90 billion likely would come from the top 10 institutions, said the official. The official declined to name the firms that would be subject to the tax aside from AIG.
But the 50-odd firms, which include 10 to 15 American subsidiaries of foreign institutions, would include Goldman Sachs, J.P. Morgan Chase, General Electric's GE unit, HSBC, Deutsche Bank, Morgan Stanley, Citigroup and Bank of America. The fee would cover all applicable Wall Street banks - including those that did not accept any money from TARP - as the White House argues all firms benefited from the bailout, even if only indirectly. Four prominent Wall Street executives testified on Capitol Hill on Wednesday about errors they committed during the financial crisis.
"Over the course of this crisis, we as an industry caused a lot of damage," Brian Moynihan, chief executive of Bank of America, said before a standing-room only crowd in the House Ways and Means Committee room, The Wall Street Journal reported. The fee would not include US automakers, who have received more than $ 75 billion in TARP funds, and Fannie Mae and Freddie Mac.
The proposal comes amid a continuing backlash against Wall Street. Democrats and Republicans in Congress have blasted TARP, and Treasury Secretary Timothy Geithner is taking heat for the government's role in helping bail out some of the biggest firms while President George Bush was still in office in 2008.
Outlines of the plan have already sparked some fierce opposition from some banking executives who say they would be forced to pass the costs of a tax onto consumers.
But Obama and Democrats have been intensely critical of Wall Street firms as they prepare to dole out lucrative bonuses to themselves this year while the country remains frozen at 10-percent unemployment. Although the administration does not intend to tax these bonuses, the Obama official said firms that pass on the fees would do so at their own peril.
"It will just seem beyond the pale to the typical American to hear of bonus pools in the $ 10-billion, $ 15-billion, $ 20-billion level in the coming weeks and then to suggest that the only way they could pay this financial crisis responsibility fee back to the American taxpayer is to pass on the cost to lenders - I don't think it's going to happen for competitive reasons and I don't think it would fly well to consumers," the official said.
AFP
15 January, 2010
In a bid to toughen up on Wall Street, the Obama administration next month will ask Congress to impose a new tax on big financial firms, arguing they have to pay for sending the world's financial system into chaos. President Barack Obama on Thursday proposed fees of 15 basis points on so-called high-risk transactions of big banks and financial institutions who derive profits from trades in derivatives and other complex financial instruments.
Under current law, the president must submit a plan to Congress to recoup the Troubled Asset Relief Program, or TARP, losses by 2013 so that the program does not add to the national debt. The administration, through current Treasury Department accounting, estimates TARP is running a deficit of $ 117 billion.
The tax, which would be collected by the Internal Revenue Service, would amount to about $ 1.5 million for every $ 1 billion in bank assets subject to the fee. The "financial crisis responsibility fee" is expected to raise $ 90 billion over 10 years by targeting the liabilities of banks with more than $ 50 billion in assets.
The measure is expected to affect about 50 firms, including roughly 35 US companies and 15 American subsidiaries of foreign firms. About 60 percent of the $ 90 billion likely would come from the top 10 institutions, said the official. The official declined to name the firms that would be subject to the tax aside from AIG.
But the 50-odd firms, which include 10 to 15 American subsidiaries of foreign institutions, would include Goldman Sachs, J.P. Morgan Chase, General Electric's GE unit, HSBC, Deutsche Bank, Morgan Stanley, Citigroup and Bank of America. The fee would cover all applicable Wall Street banks - including those that did not accept any money from TARP - as the White House argues all firms benefited from the bailout, even if only indirectly. Four prominent Wall Street executives testified on Capitol Hill on Wednesday about errors they committed during the financial crisis.
"Over the course of this crisis, we as an industry caused a lot of damage," Brian Moynihan, chief executive of Bank of America, said before a standing-room only crowd in the House Ways and Means Committee room, The Wall Street Journal reported. The fee would not include US automakers, who have received more than $ 75 billion in TARP funds, and Fannie Mae and Freddie Mac.
The proposal comes amid a continuing backlash against Wall Street. Democrats and Republicans in Congress have blasted TARP, and Treasury Secretary Timothy Geithner is taking heat for the government's role in helping bail out some of the biggest firms while President George Bush was still in office in 2008.
Outlines of the plan have already sparked some fierce opposition from some banking executives who say they would be forced to pass the costs of a tax onto consumers.
But Obama and Democrats have been intensely critical of Wall Street firms as they prepare to dole out lucrative bonuses to themselves this year while the country remains frozen at 10-percent unemployment. Although the administration does not intend to tax these bonuses, the Obama official said firms that pass on the fees would do so at their own peril.
"It will just seem beyond the pale to the typical American to hear of bonus pools in the $ 10-billion, $ 15-billion, $ 20-billion level in the coming weeks and then to suggest that the only way they could pay this financial crisis responsibility fee back to the American taxpayer is to pass on the cost to lenders - I don't think it's going to happen for competitive reasons and I don't think it would fly well to consumers," the official said.
AFP
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