Tabs

Tuesday, February 14, 2012

Commentary on the Administration's Proposed Bank Tax

The American Bankers Association (ABA), representing the nation's $13 trillion banking industry and its over two million employees, strongly opposes the tax on banks that was included in the Administration's February 13, 2012, Fiscal Year 2013 budget proposal. The "financial crisis responsibility fee" (bank tax) was originally introduced in January 2010 to recoup losses from the Troubled Asset Relief Program (TARP). The fact is that just last week, Treasury's report on TARP stated that taxpayers have already recovered $13 billion more than the $275 billion invested in banks and "the banks programs will result in a lifetime positive return for taxpayers of more than $20 billion."

A continuing misconception of the TARP program is that financial support was provided only to the banking industry. In fact, TARP was expanded to provide financial support to General Motors, Chrysler, AIG, and the Administration's housing programs. To the extent that there will be losses on TARP, it is from these other uses of funds, not the investments made in banks. Given non-bank programs are responsible for all of TARP's losses, the bank tax is an arbitrary tax on institutions of a certain size without regard to where the losses actually occurred. After last year's proposal in the budget, The Congressional Budget Office acknowledged this, saying "the firms responsible for paying would not be those that are directly responsible for losses realized by TARP."

Besides the unfairness of banks paying a tax on top of the significant return on investment for taxpayers, there are significant unintended negative and unintended consequences of taking capital out of the banking system. It is important to remember that $1 of bank capital can support up to $10 in lending, which means that a 10-year tax of $61 billion would result in up to $600 billion in loans that would not be made over that 10-year period. This means that millions of small business loans would be in danger of not being funded.

The ABA believes that a bank tax in ill-conceived regardless of the economic cycle. It is, however, irresponsible to assess such a tax at this time when the economy is just starting to gain momentum. Credit availability is vital to future economic growth and job creation. Implementing any tax now would likely lead to a greater withdrawal of resources in a shorter period of rtime than is appropriate or prudent. The bank tax would mean higher borrowing costs and less credit availability for consumers and businesses, while pushing financial activity to unregulated non-bank sectors.

We urge the Administration to resist efforts to propose unwarranted taxes on the banking industry. Such proposals only harm an already weak economy.

By Frank Keating, ABA President and CEO

No comments:

Post a Comment

Please read our comment policy before making a comment.