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Obama's bank tax flunks on every count
David Frum
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TEXT OF COMMENTARY
Kai Ryssdal: Tom Mann and I were talking a couple of minutes ago about what Democrats may or may not be able to get done now that Republicans have 41 votes in the Senate. To that list you have to add the president's proposed tax on banks. He wants them to help make sure that TARP, the bank bailout, doesn't cost taxpayers money.
Commentator David Frum understands that part. It's the tax part he doesn't agree with.
DAVID FRUM: When and if we recover from this recession, we are going to have to worry about government debt and deficits. Spending cuts and tax increases will become the priorities of politics. President Obama just gave us a good example of how not to do it.
The president has endorsed a tax on banks by size to collect a projected $90 billion over the next 10 years. The president argues that the tax will help repay taxpayer losses in the TARP bailout program for banks.
It's a crummy argument. Most of the TARP losses will be racked up not at banks, but at the AIG insurance company and the rescued automakers, GM and Chrysler. No tax for them.
Meanwhile, banks that received not a dime from TARP will be taxed.
I get it that people want to punish banks. Banks lobbied to change laws to allow them to undertake riskier activities. Then when the risks went bad, they begged for public money to rescue themselves. They got it too, and now they are paying their top people huge bonuses to thank them for profits really owed to public generosity.
So the desire to punish is understandable. But punishment is a bad basis for taxation.
The new tax won't be applied to bonus pools. It will be applied to banks by asset size, meaning based on the amount of lending they do. But of course the big problem of the moment is that banks are not lending nearly enough.
How does it make sense to punish banks for doing more of what we should want them to do? It's true that the huge expansion of government undertaken by President Obama will have to be financed to the extent it cannot be rolled back.
That financing ought to be done as rationally as possible. It should preserve incentives to work, save, and invest. It should avoid favoring or disfavoring specific industries. It should be cheap to collect. And it should be enacted jointly with reductions in government spending.
President Obama's bank tax flunks on every count.
Ryssdal: David Frum is a resident fellow at the American Enterprise Institute.
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Obama and Congress can also create tax cuts for people $50,000 and under
think about that!!!
The bank fees should be based on assets/accounts so that the big banks have to break up to avoid the fee, and thus no longer be too big to fail.
btw: these banks ALREADY put up fees that are worse than smaller community banks. but oh well. this article is a sob story about big banks.
The question everyone should be asking is if the President can come out and create a "tax" on banks what's to stop him and Congress from adding a tax on anything they want.. say the middle income family that's earning more than $50,000 a year...something to think about!!!!
frum correctly points out that taxes should not be punitive, should provide incentives, and assesses the proposed bank tax fails on both criteria. and while the presidents proposal would be punitive in that it would satisfy the public outrage towards banks, it makes some sense economically. behavior should mimic risk. ideally the tax would offset any potential profits made from future bailouts, providing disincentive to expect federal safety nets. this goes across all industries. logically the tax burden will be passed on to consumers, so if the tax amount will be graduated (based on assets) competition should increase. people move their money to smaller community banks or non-profit credit unions. and the giants will no longer be too big to fail, providing a healthier banking environment.
I would like to add to Tom Griffin's comment that the TARP requires Obama to RECOVER the money lent so that TARP is fiscally neutral.
You can say those words, right David?
Fis-cal-ly Neu-tral. Don't have a heart attack man.
If only we can tax lies from the republicans, we would be debt free as a nation.
It is true that david frum's last boss royally sunk the US economy into near collapse after just giving a pad on the back to the boys at Enron. It is a fact that taking advice from Frum on the economy is like letting Osama Bin Laden run our national security system.
It is true that we will all miss the fake press conferences setup by the bush administration.
Interesting that another Republican, David Stockman, just published a piece in the NYT that posits exactly the opposite point of view about the bank tax.http://www.nytimes.com/2010/01/20/opinion/20stockman.html?ref=opinion
Stockman believes that anything the government can do to stop the pillaging of our economy by Wall St. is good. Apparently, Frum thinks that that same pillaging is constructive economic activity.
David Frum's commentary was another example of the kind of right-wing propaganda that Americans seem to be swallowing so easily these days. "War is Peace." "Barack Obama is not even a U.S. citizen." Now its "A tax on banks that are 'too big to be allowed to fail' is irrational and emotional."
My father grew up during the Great Depression and worked in the savings and loan industry (bringing in some of the first computer systems and branch networks) while I was growing up. He told me back in the 1970's that he could see that the changes in the banking laws and regulations that Congress was enacting were reversing the safeguards that had been put in place to prevent that kind of economic disastor from happening again. Today it certainly appears to me that he was right. So far I have not seen the kind of legislation and regulation that will put those safeguards back in place again. In my opinion, the proposed tax is a step in the right direction.
I have no interest in punishing the banks, but I have thought for many months now that we should either break the huge ones up into smaller institutions or provide an economic incentive for them to limit their own size. I think the tax idea is even better, because it essentially makes the banks pay the premiums for this unwritten insurance policy they have acquired by becoming so large that our government is afraid to let them fail. I think my father would have agreed.
Here's a fresh idea, don't tax banks for raking in the profits that they now make because they were not hung on their own petard. Instead raise the interest rate based on the amount they have on their books from the Federal Reserve. A sliding rate, somewhat like individuals pay when their borrowing gets high. At least two things will happen, first small banks will get a better rate than the large banks; second, those that save will get something more than the .1% that is currently paid. Optimistically it will burst bubbles driven by big investing with borrowed free money.
I'd be in favor of a 50% income tax on all six-figure income commentators and personnel that work for think tank non-profit and lobbying organizations.
There seem to be a lot of opinins and talking heads but few willing to get off their #$$^&%% and do anything (David Frum?).
Maybe we should tax small banks and credit unions? That's something all the big banks could get get behind.
If you want stuff,you've got to pay for it, and Republicans seem to have wanted a lot of stuff then handed the tabs to Democrats.
And where was your fiscal responsibility in January 2002 when the US budsget was actually in balance?
There would be no need for additional taxes today if we'd done the right things in 2002 through 2006.
Frum focused on the Tarp money that was repaid by the banks, but conveniently didn't mention the troublesome bank mortgage securities that are now on the books of the Federal Reserve. Or the relaxation of accounting standards that let banks to make them look more sound.
He also didn't mention the Federal Reserve subsidizing banks by electing to pay 3% interest on excess bank reserves when it had previously paid 0%. So the banks are getting 3% by loaning money to the Federal Reserve, which sure doesn't encourage their lending to the rest of the economy.
Nor did he mention the below market pricing of government deposit insurance that also serves as a bank subsidy.
Nor that most of the AIG government rescue money flowed directly to banks to settle private party credit default swap contracts that were between AIG and the banks.
The financial industry of the last decade has helped fund three bubbles, the Internet Bubble, the Housing Bubble and the Commercial Property Bubble.
This has led to a massive mis-allocation of human and material resources that could have been put to better use.
So a tax on the financial industry is entirely appropriate as the US needs to de-emphasize finance and move to more productive pursuits such as value added manufacturing.
Perhaps some of the talking heads that are quick to defend the status quo will get productive jobs in this new economy rather than serving as apologists for the well off.
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