Bank penalties will get passed onto consumers

[flarendep1]

CBO Warns Obama's Proposed Bank Fee Could End Up Costing Consumers
March 04, 2010 6:13 PM


President Obama's proposed fee on the country's biggest banks receiving taxpayer bailout money would ultimately result in costs to the firms' customers, employees, and investors, a non-partisan Congressional watchdog said today.

In January the President unveiled a proposal to impose a fee on about 50 of the nation's biggest banks with assets of $50 billion or more in an effort to recoup around $90 billion of taxpayer money dished out as part of the Wall Street bailout.

"We want our money back and we're going to get it," the President said.

But the Congressional Budget Office today warned that "the 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," the CBO said today in a letter to Sen. Chuck Grassley.
"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."

The availability of credit - already a problem for some consumers and businesses - could also be limited by the proposed fee, the CBO said.

"The fee would probably lower the total supply of credit in the financial system to a slight degree. It would also probably slightly decrease the availability of credit for small businesses."

The effect of the fee on the banks, the CBO said, would be "small".

In response to the CBO analysis, Grassley released a statement, saying, "A lot of analysts have said banks would pass the fees onto their customers. The CBO analysis confirms this and adds a lot of points for consideration from a very credible source. Before this proposal moves forward, Congress needs to understand the consequences, good or bad."

Even with the proposed fee, the CBO estimated that the full cost of the $700 billion financial bailout would still be nearly $100 billion, plus another $200 million per year for administrative costs.

The financial industry has voiced strong opposition to the fee, with JP Morgan Chase CEO Jamie Dimon saying in January, "I think using tax policy to punish people is a bad idea."





Ahhh the unintended consequences of the great ones plan. Feel good now?


Just like Cap and trade will do. Who gets hurt the worst.........the poor.........wake up Libs.

[BettorsChat]

How to get our money back from the banks
JAN 11, 2010 16:43 EST
BANKING
Of course it would be great if the big banks, currently making outsize profits thanks to the Fed’s zero interest-rate policy, had to pay back some of the enormous fiscal cost of the financial crisis they were largely responsible for causing.

The Obama administration has come under pressure at home and abroad to support a financial transactions tax on institutions and to heavily tax their executive compensation.

But the United States, led by the Treasury Secretary Timothy F. Geithner, has been opposed, arguing that a transactions tax would simply be passed on to customers and a bonus tax could be easily circumvented.

So, how to do this? The NYT and Politico are talking about some kind of “fee”, but it’s hard to see how to stop that from being passed on to customers. Simon Johnson, then, reckons it should be the bankers who are targeted, rather than the banks:

The answer is easy: people working at our largest banks – say over $100 bn in total assets – should get zero bonus for 2009…

The administration should immediately propose and the Congress must at once take up legislation to tax the individuals who receive bonuses from banks that were in the Too Big To Fail category – using receipt of the first round of TARP funds would be one fair criterion, but we could widen this to participation in the stress tests of 2009.

The supertax structure being implemented in the UK is definitely not the right model – these “taxes on bonuses” are being paid by the banks (i.e., their shareholders – meaning you, again) and not by the people receiving the bonuses.

Essentially, we need a steeply progressive windfall income tax – tied to the receipt of a particular form of income. This is tricky to design right – but a lot of good lawyers can get cranking.

I think Simon is right that such a tax is hard to design, and therefore wrong that it’s in any way “easy”. If you tax 100% of bankers’ 2009 bonuses, then the banks simply won’t pay any 2009 bonuses, and you’ll get no revenue. Meanwhile, banks will just double those bankers’ bonuses in 2010.

I don’t think there’s any easy answer here, but I do think that Simon is unnecessarily harsh on the UK supertax, which seems to have worked quite well: banks are doubling their bonus pools and paying half to the government, raising a lot of money for the public fisc. Yes, the public does own a large number of bank shares. But I see no evidence that the UK supertax has done particular damage to bank stocks.

How to get our money back from the banks | Analysis & Opinion | Reuters