Today, President Obama announced a proposal for a new tax on certain large banks and other financial firms that the White House is calling a “Financial Crisis Responsibility Fee.” The tax is intended to repay taxpayers for the $117 billion expected cost of the Troubled Assets Relief Program (TARP). In explaining his justification for the proposal, President Obama said, “I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street.”
If enacted, the tax would generate at least $90 billion in new tax revenue over 10 years from about 50 firms, including large banks, insurance companies and broker-dealers, although the tax could survive longer than 10 years if the actual cost of TARP is higher than currently estimated. Only those institutions with more than $50 billion in consolidated assets would be subject to the tax, effectively exempting smaller regional and community banks. Subject institutions would pay a fee of approximately 15 basis points (0.15%) of their “covered liabilities” each year. “Covered liabilities” would be defined as consolidated assets, minus Tier 1 capital, minus FDIC-assess insured deposits (including insurance policy reserves). Thus, the tax assessed would increase proportionally with the firms’ non-FDIC-insured indebtedness, with the stated goal of “providing a deterrent against excessive leverage for the largest financial firms.” The tax would apply only to those entities with more than $50 billion in consolidated assets.
Thirty-five of the 50 firms that would be subject to the proposed tax are based in the United States, and 10 of the other 15 non-U.S. based firms are U.S. subsidiaries of foreign-based institutions. Approximately half of the subject firms are U.S. banks, including some of the largest such as J.P. Morgan Chase and Bank of America. An administration official estimated that the 10 largest financial firms would be responsible for approximately 60% of the total tax revenue collected under the proposed fee.
Banks who have repaid TARP funds, such as Goldman Sachs, would still be subject to the tax, although Chrysler and General Motors, both of which received federal funds as part of their restructurings, would be exempt.
The financial industry is expected to lobby against the proposal and has already begun to voice its objection to the proposed fee. J.P. Morgan Chase Chief Executive James Dimon said it would be unfair for the banks to cover the costs of bailing out the auto industry, and said that, “Using tax policy to punish people is a bad idea.”