Fallout: The Financial Crisis

Ways to recoup taxpayer bailout money

Bob Moon Mar 5, 2010
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Fallout: The Financial Crisis

Ways to recoup taxpayer bailout money

Bob Moon Mar 5, 2010
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TEXT OF STORY

KAI RYSSDAL:The nonpartisan Congressional Budget office gave the White House a poke in the eye today. The CBO said the way it figures things the federal deficit over the next 10 years is going to be about a trillion dollars more than the White House says. The difference it seems is in how future tax revenues are going to be calculated on either side.

The White House is counting on about $99 billion in revenue — most of it from the country’s biggest banks. You remember a couple of months ago, President Obama announced plans for a fee to get back the taxpayer bailout. This week the CBO said that fee would ultimately hit consumers and investors hardest.

So we asked our senior business correspondent Bob Moon this very pointed question: Is there any way to recover that money without making all of the rest of us pay up?


BOB MOON: There’s something of a contradiction to start with: The government has actually made money helping bail out the banks. It’s mainly the auto industry, followed by mortgage assistance and the bailout of insurance giant AIG, that’s cost taxpayers most.

Still, President Obama has voiced his determination to target the banks.

President Barack Obama: We want our money back, and we’re going to get it.

University of Maryland economist Peter Morici says under Obama’s proposal — and in the free market — banks or any other businesses are free to pass on the cost of doing business, or go elsewhere to avoid such a tax.

Peter Morici: If you raise the cost of capital by taxing it in one industry, you either raise the price consumers pay, or you drive that capital elsewhere.

Morici suggests a more precise tax that he contends could not be passed along — targeting bonuses. Obama’s own Treasury Secretary Timothy Geithner worries that could put American banks at risk of losing their best executives to banks abroad. But Morici points out Britain has already moved to tax bonuses, and there’s strong support elsewhere.

Morici: If we chose to tax bank bonuses, I’m fairly confident we could get the French, the Germans and others to follow, so there’d be no place to go.

Banking industry expert Bert Ely argues taxing bonuses would be punitive and bring in relatively meager amounts in taxes.

Bert Ely: First of all, if you try to tax bonuses, banks and their compensation consultants would try to figure out other ways to pay people so that they would be exempt from the bonus tax.

Ely says the banks could easily just shift the payout into base salaries. Which means, he says, there’s really no way to shield consumers or investors.

Ely: This is going to be just another cost of banks doing business, and they’re going to pass that cost through to their customers in one way or another.

The CBO report does point to one factor that could limit higher costs for banking services: Customers could always walk to smaller banks not subject to the proposed fee.

I’m Bob Moon for Marketplace.

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