So President Obama wants to slap a tax on banks, but should you really care? Absolutely. Those taxes are going to wind up costing YOU money, whether you’re a customer, a bank employee or an investor, according to the non-partisan Congressional Budget Office (CBO).
As ABC News reports, the CBO wrote a letter yesterday to Sen. Chuck Grassley (R-IA) in which it highlighted that the American people will bear the true brunt of the President’s proposal. From the CBO’s letter:
[T]he ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government.
The cost of the proposed fee would ultimately be borne to varying degrees by an institution’s customers, employees, and investors.
Customers would probably absorb some of the cost in the form of higher borrowing rates and other charges, although competition from financial institutions not subject to the fee would limit the extent to which the cost could be passed to borrowers. Employees might bear some of the cost by accepting some reduction in their compensation, including income from bonuses, if they did not have better employment opportunities available to them. Investors could bear some of the cost in the form of lower prices of their stock if the fee reduced the institution’s future profits.
President Obama announced his bank tax during his State of the Union Address in January and claimed it would be a way to recoup money dished out to banks as part of the Troubled Asset Relief Program bailout. The truth, though, is that those banks already paid-back the bailouts, with interest; the real deadbeat offenders are Freddie Mac, Fannie Mae, Chrysler and General Motors, who have yet to repay their debt. (Take a look at the above chart to see who has repaid – and who hasn’t.)
The President’s proposal was a not-so-thinly-veiled populist proposal, intended to play to an America disgruntled with government bailouts and those institutions that won government handouts.
He better brace himself for an America that finds itself even more disgruntled when they realize they’re getting hit with the very tax that was meant to appease them.
The health care reform wallowing through Congress includes a ploy reminiscent of the “liar loans” prominent during the recent real estate bubble before its collapse. The bill cuts imaginary Medicare spending and uses the funds for real spending elsewhere. Senator Judd Gregg (R-NH) has blown the whistle on this charade. Health care reformers are not amused.
“Liar loans” describe so-called no documentation mortgage loans used to finance home purchases in the worst of the real estate bubble. In qualifying for loans, borrowers were on their honor not to misstate their income, liabilities, and assets. Many proved dishonorable, claiming income they didn’t earn. Few of the homes purchases with these loans escaped foreclosure.
The health care reform bill proposes to pay for new entitlement spending by cutting Medicare. The trouble, of course, is that much of Medicare spending is already unfunded and unaffordable. Even assuming Congress defies steep odds and actually reduces future programmed spending, the Medicare money is not really there to be cut, so it’s not there to be redirected, either — another case of the missing income.
Imagine if you committed to spend $1000 more than you earned every year. Imagine then you found something new to buy, at a price tag of $100. Cutting back your original spending to $900 and then adding the new item for $100 is hardly an act of fiscal prudence.
Senator Gregg as Ranking Member of the Senate Budget Committee has offered an amendment in his role as guardian of budget common sense. His amendment simply says that Medicare savings can only be used for Medicare, and he achieves this result by requiring that the bill be budget neutral exclusive of Medicare savings.
The Gregg amendment corrects only one of the many flaws in the bill, but it is an important step. It says that the bill has to be paid for with real money, not liar loans. If Congress adhered to this kind of honest budgeting more often, it would likely be spared some painful votes like the pending hike in the national debt limit.