# Taxing Banks for the Bailout

• News

## Main Question or Discussion Point

Obama Calls for Bank Tax to Recoup Bailout
[...]
“to recover every single dime the American people are owed”
[...]
Democratic leaders on Capitol Hill welcomed the proposal
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Republicans were uncharacteristically silent
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Obama spoke in some of his harshest language to date about the resurgent financial industry.
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“What I say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities”
I'd be interested to read people's opinion. I especially do not understand the following comment
“The irony is it hurts the weaker banks more than the stronger banks,” said Meredith Whitney, a prominent financial services analyst. “To think that it won’t come out of consumers and businesses is mistaken.”
Thank you in advance for sharing thoughts.

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Al68
I especially do not understand the following comment
“The irony is it hurts the weaker banks more than the stronger banks,” said Meredith Whitney, a prominent financial services analyst. “To think that it won’t come out of consumers and businesses is mistaken.”
This is true of taxes and regulation in general. Bigger businesses benefit from the burden taxes and regulation put on their (smaller) competition. This benefit outweighs the cost of the taxes and regulation to the bigger businesses because they can afford it a lot easier than their smaller competitors. In fact the cost is completely passed on to consumers. The net result is more growth, market share, and profit for the large companies at the expense of small companies and consumers.

This is apparently a difficult concept to understand, a moderator even locked a thread not so long ago over this concept, apparently not understanding how large companies are greatly helped by government actions that disproportionally harm or limit their competitors.

Any government action that reduces competition in any market benefits larger companies at the expense of smaller companies and consumers.

Any government action that reduces competition in any market benefits larger companies at the expense of smaller companies and consumers.
I understand the logic, but I am not sure it is so obvious. Here for instance, the tax does not apply at all to smaller banks, and does "impose the greatest burden on firms that rely less on customer deposits" (from the second page of the above link). Even worse, as far as I read it is not yet even clear whether the tax will be applied to the banks or their executives
A steeply progressive bonus tax should be paid by employees themselves, not by the banks (and their shareholders). The effect presumably will be to discourage people from working at such banks and to push our biggest banks to become smaller. Ordinarily, we worry about such effects from a tax regime, but in this case it will move us in exactly the right direction.

Alfi
Is this a 'mom & pop' vs the BIG 'MONEY' of banks issue?

I just don't know so I ask.
I'm a Canadian, and with our system we have not had any failures in our banking system.

Al68
I understand the logic, but I am not sure it is so obvious. Here for instance, the tax does not apply at all to smaller banks, and does "impose the greatest burden on firms that rely less on customer deposits" (from the second page of the above link). Even worse, as far as I read it is not yet even clear whether the tax will be applied to the banks or their executives
The specifics of this particular plan is unclear to me, too. My personal belief is that each bailout should have been treated as either a loan or a no-strings gift to begin with, without a bait and switch fraud after the fact.

The only legitimate terms of each bailout are the exact same terms that were agreed to at the time, no more, no less. That's the honest ethical way that decent peaceful people treat each other. And it's been virtually universal common law for centuries.

It looks to me like Obama is saying "It was a gift, but now, retroactively, we will treat it as a loan to be paid back with terms we determine are fair after the fact, and paid back by those who had nothing to do with asking for the bailout, and no basis for owing anything, and never agreed to have anything to do with it. And since we're the government, we can use force to get our way, and are exempt from any and all notions of common decency. And we can and will do things that we would imprison anyone else for doing. Caesar (and King George) would be soooo jealous, they could have only exercised such power over people in their wildest dreams. I'm the man!"

OK, that last part was a rant, but a pretty apt one.

My understanding was that most of the big banks had already paid back their TARP funds.

The money will be paid back with interest. I'm not sure what Obama is looking to "recover".

And, of course, taxation, no matter how one tries to modify it, will always hit one business or group of persons over another.

My understanding was that most of the big banks had already paid back their TARP funds.

The money will be paid back with interest. I'm not sure what Obama is looking to "recover".

And, of course, taxation, no matter how one tries to modify it, will always hit one business or group of persons over another.

The large banks have paid back their loans, with interest, and are now profitable. GM, on the other hand, may never be able to pay back it's obligation - short of a sale of the the government held equity position. It's very unlikely the government/UAW alliance will ever be able to generate a profit (especially selling cars nobody wants at very high prices).

Hello, I am Mr. Middle Class. I will be paying for the banks taxes. I will also be paying for national healthcare.(but that's a different topic)

I guess Mr. Obama's speech writer is not concerned over bank failures.

Ivan Seeking
Staff Emeritus
Gold Member
An interesting discussion with David Stockman - mastermind of Reaganomics and Reagan's Director of the Office of Management and Budget.

I thought Stockman's final comment was rather definitive.

...

PAUL SOLMAN: And now both men [Paul Krugman and David Stockman] favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan's budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending.

Do you still feel that way?

DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn't work. You can keep cutting taxes until you reach the point where this year -- or the year just ended, we spent $3.6 trillion, and we only collected$2.2 trillion.

So, we are now so far out of kilter that it's irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can't be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.

The Republicans think their mission in life is to cut taxes. Sorry, game -- game over. We're now in the tax-raising business. And we're going to be in the tax-raising business for the next decade.

PAUL SOLMAN: David Stockman, thank you very much. Thank you.

So there you have it from one of the authors of modern conservatism.

Stockman supports Obama's tax on the banks.

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Gokul43201
Staff Emeritus
Gold Member
But that excerpt says nothing about the specific tax being debated in this thread (IMO, this tax is a terrible idea).

russ_watters
Mentor
The fact that "starving the beast" doesn't work is as much an indictment of the inability to get congress to cut spending. It certainly doesn't make it wrong to want to cut taxes and spending, it just means that cutting taxes won't force a cut in spending (a theory I actually hadn't heard before).

I don't think it follows that one should give up the fight due to the policy being implemented wrong. That's not a failure of the overall idea of smaller government, just the idea that congress or the Pres will act responsibly when faced with a fiscal crisis. Heck, Obama is proving that much by continuing to raise spending and planning on trillion dollar deficits throughout his first term (a mistake that may cost him the election).

Obama's really going for the opposite of the "starve the beast" approach - perhaps we should call it "release the beast". He's massively raising spending to force a tax increase.

But there is hope to be had: Once the Repubs get back in power in Congress (maybe this year!), they can restore fiscal sanity by cutting spending. They can force Obama to be responsible just like they did Clinton.

Ivan Seeking
Staff Emeritus
Gold Member
But that excerpt says nothing about the specific tax being debated in this thread (IMO, this tax is a terrible idea).
The interview does address that. Both Krugman and Stockman [polar opposites] support the tax.

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Ivan Seeking
Staff Emeritus
Gold Member
The fact that "starving the beast" doesn't work is as much an indictment of the inability to get congress to cut spending. It certainly doesn't make it wrong to want to cut taxes and spending, it just means that cutting taxes won't force a cut in spending (a theory I actually hadn't heard before).
This has been a fundamental princple of modern conservatism since Reagan.

I don't think it follows that one should give up the fight due to the policy being implemented wrong. That's not a failure of the overall idea of smaller government, just the idea that congress or the Pres will act responsibly when faced with a fiscal crisis.
It is yet another failure of the Republican model. It also speaks to the fact that continually cutting taxes is not the path to fiscal sanity. The Republicans need to quit using tax cuts as the end-all solution. As Stockman states: Game Over. It doesn't work.

Heck, Obama is proving that much by continuing to raise spending and planning on trillion dollar deficits throughout his first term (a mistake that may cost him the election).
A necessary response to a catastrohpic failure of the Republican philosophy that less government is better. It was too little regulation that created this disaster. To blame Obama for this is looney. This all goes back to Reagans mantra that the best government is no government.

Obama's really going for the opposite of the "starve the beast" approach - perhaps we should call it "release the beast". He's massively raising spending to force a tax increase. But there is hope to be had: Once the Repubs get back in power in Congress (maybe this year!), they can restore fiscal sanity by cutting spending. They can force Obama to be responsible just like they did Clinton.
Just like they did Clinton? What a joke. Clinton was the one demanding that we reduce the deficit. It was at the core of his economic plan. Only after Clinton was elected on this platform in '92 did the Republicans get in line in '94 and try to jump on the bandwagon. The Republicans wanted more and more tax cuts. This was when I first became aware of the fact that it is Republicans who want to engage in unnecessary deficit spending, not the Democrats. Then, as you do now, the Republicans opposed spending when we desperately needed it to save the economy. Had your fiscal conervatives had their way, we probably would be in the midst of the second great depression. No doubt the Republicans would have found a way to blame Obama for that as well. God bless John Boehner who wept on the floor of the House and begged his irrational, die-hard, ideological collegues, to support the bailout - but only after the stock market went into a tailspin in response to Republican stonewalling. In the words of one stock expert who was watching the first vote which failed to support the bailout: "Those guys have no idea what they're doing". [source: The Frontline documentary on the Meltdown, which has been linked in a couple of threads].

Where were your so-called Conservatives when Bush was in office? They had their chance and they nearly destroyed the country. After eight years of Bush and six year of Republican control of Congress, the country is in worse shape that I've ever seen it. Game over!

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Obama's really going for the opposite of the "starve the beast" approach - perhaps we should call it "release the beast". He's massively raising spending to force a tax increase.

But there is hope to be had: Once the Repubs get back in power in Congress (maybe this year!), they can restore fiscal sanity by cutting spending. They can force Obama to be responsible just like they did Clinton.
Obama ran on "change" - nobody thought it would include massive "tax and spend" programs. The Republicans will ride into town next time with a clear mandate - CUT ENTITLEMENT SPENDING - before it's too late.

Medicare, Medicaid and Social Security are the underlying problems in the health care debate. The proposed legislation ALMOST succeeded in covering up and expanding the problem.