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.
In his State of the Union Address, President Barack Obama proposed “a modest fee” on banks that “would pay back the taxpayers who rescued them in their time of need.” In truth, his bank tax would hit financial institutions who have paid-bank their bailout funds, with interest, while those who haven’t – Fannie Mae, Freddie Mac, General Motors and Chrysler – would get off scot-free.
As Politico reports, Sean Ryan at Wisco Research firm says Obama’s tax would have other effects, too. From Politico: “[Ryan] predicts the banks will simply pass on the cost of the new fee to their corporate customers, which quite likely will move it along to consumers when possible.”
And more perversely, Ryan notes, the tax revenue will foot the bill for the aforementioned firms that received bailouts, yet haven’t paid anything back:
Since most banks either are in the process of paying back bailout money with interest or have already paid it back, “the loss in the [Troubled Asset Relief Program] that is gone and is never coming back under any scenario is the money extended to GM and Chrysler,” said Ryan. “So this is taxing banks to fund the auto bailout.”
Heritage’s Senior Research Fellow David John says the tax will also make it difficult for banks to resume lending:
While Administration officials urge banks and other firms to start lending again, the new tax … would discourage them from taking risks. The “fee” would apply regardless of a firm’s profitability and would make it even harder for firms recovering from last year’s losses to rebuild the capital needed to back up lending.
John says it’s the “wrong approach to reduce the swollen deficit,” and rightly concludes, “It is a bad idea being used to score political points and should be dropped.”