On Thursday, the Obama administration unveiled its proposal of imposing a tax on about 50 of the nation’s largest financial firms to recover the losses incurred by the government on its $700 billion bailout program to rescue the financial system.
On approval of the Congress, the tax, which the White House calls a “financial crisis responsibility fee”, would force the banks to reportedly pay the federal government about $90 billion over 10 years. The Obama administration also expects the ten biggest banks to pay 60% of the total tax.
About 35 of the 50 tax paying firms would be U.S. companies and 10 to 15 would be U.S. subsidiaries of foreign financial firms. About half the 50 firms would be U.S. banks, including Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC) and Morgan Stanley (MS). The tax would also impact companies, such as General Electric Co. (GE) and American International Group (AIG).
According to the proposal, a 0.15% tax would be levied on the liabilities of the banks to ensure recovery of every dollar spent from the $700 billion Troubled Asset Relief Program (TARP) primarily to rescue the banks and automakers. The tax will be levied only on firms with at least $50 billion in assets. The firms would have to pay up even though many did not receive any government assistance and many have already repaid the bailout money.
Targeting banks to recover the shortfall in bailout money is justified as they are the major beneficiaries of the taxpayer’s largesse. Most of the bailout loan was provided to financial institutions as they form the backbone of the economy and were the primary victims of the crisis.
The Treasury has given $247 billion to more than 700 banks, out of which $162 billion has been repaid by the banks. Banks have paid an additional $11 billion in interest and dividends.
The government is already in the process of using the repaid bailout money to create new jobs and cut the nation’s fiscal deficit. Imposition of a fee on banks is expected to further help reduce the deficit.
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