About half of the 50 companies required to pay this fee would be U.S. banks, including the largest: Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). The largest 10 institutions would pay about 60% of the tax's total cost. Ten to 15 U.S. subsidiaries of foreign firms will also have to pay.
- Require the financial sector to pay back the extraordinary benefits received: Many of the largest financial firms contributed to the financial crisis through the risks they took, and all of the largest firms benefited enormously from the extraordinary actions taken to stabilize the financial system. It is our responsibility to ensure that the taxpayer dollars that supported these actions are reimbursed by the financial sector so that the deficit is not increased.
- Will remain in place for 10 years or longer if necessary to fully pay back TARP: The fee, if passed by Congress, will go into effect on June 30, 2010. If the costs have not been recouped after 10 years, the fee would remain in place until they are paid back in full. In addition, the Treasury Department would be asked to report after five years on the effectiveness of the fee as well as its progress in repaying projected TARP losses.
- Raise up to $117 billion to repay projected cost of TARP: The expected cost of the TARP program has dropped dramatically. While the Administration projected a cost of $341 billion as recently as August, it now estimates, under very conservative assumptions, that the cost will be $117 billion -- reflecting the $224 billion reduction in the expected cost to the deficit. The proposed fee is expected to raise $117 billion over about 12 years, and $90 billion over the next 10 years.
- Repayment will be three years earlier than required:The statute that created the TARP required repayment by 2013. The President doesn't want to wait that long. Instead by implementing this tax, the President is fulfilling three years early his commitment to put forward a proposal that would – at a minimum – ensure that taxpayers are fully repaid for the support they provided.
- Only apply to the largest and most highly levered firms: The fee the President is proposing would be levied on the debts of financial firms with more than $50 billion in consolidated assets, providing a deterrent against excessive leverage for the largest financial firms. By levying a fee on the liabilities of the largest firms -- excluding FDIC-assessed deposits and insurance policy reserves, as appropriate -- the Financial Crisis Responsibility Fee will place its heaviest burden on the largest firms that have taken on the most debt.
Where the Money Could Come From: Bonus Pools
Some Republicans have already expressed concerns that banks will merely pass the cost on to consumers. The counterargument is that since only the largest banks will be taxed, if they do pass on the costs they won't be able to compete as easily as they do now against smaller banks that won't have to pay. Instead, the Obama administration wants the largest financial institutions to offset the tax by reducing the size of their bonus pool.
Under the proposal, a 15% tax would be levied on liabilities. The tax would apply to bank holding companies, thrifts, insurance companies that own financial arms and broker-dealers with at least $50 billion in assets that received assistance from TARP, the FDIC's temporary loan program or other crisis efforts. Total liabilities would be taxed minus some capital such as common stock, and disclosed and retained earnings, FDIC-covered deposits and insurance policy reserves.
Banks that lean heavily on funding sources other than customer deposits would pay proportionally higher taxes. That means Goldman Sachs and Morgan Stanley could pay the most. Citigroup could also be hit harder because its main U.S. banking unit's insured deposits represent a small slice of the company's total liabilities.
An Anger That's Hard to Ignore
General Motors and Chrysler would be exempt from the tax, meaning the banks will be paying for their bailout. The Obama administration thinks that's fair because the automakers' collapse was caused at least partly by the financial crisis of the banks' making. Of course, the U.S. auto industry's deeper problem was not paying attention to what consumers wanted: well-made vehicles that proved reliable over the long haul.
Even though Republicans expressed some reservations about the tax, David Camp (R-Mich.), top Republican on the House Ways and Means Committee, told Bloomberg that voter anger at banks will be hard to ignore. He thinks it will be a "tough bill politically to oppose." He said Republicans find bonuses that bailed-out banks are paying "irresponsible" and "outrageous," but they're also still concerned the proposal could hurt lending.
As in any situation where there's a bill to be paid, the question is: Who'll pay?