Taxing banks: Is it fair?

last updated 8 January 2015

Pity the poor bankers, said Chris Farrell in Bloomberg BusinessWeek. Just as they were preparing to celebrate 2009 profits with more than $145 billion in bonuses, President Obama announced a plan to levy a new tax on big banks that were saved from imminent collapse last year with hundreds of billions in taxpayer funds. Most banks have already repaid the funds they received through the Troubled Asset Relief Program (TARP). But Obama wants to impose a tax that would raise up to $117 billion over the next decade. The government desperately needs revenue, said E.J. Dionne in The Washington Post, and the financial sector is the logical place to get it. In recent years, our society has witnessed a “large income and wealth shift” to the top 1 percent of all wage earners—“the financial sector in particular.” Rebalancing the scales is “a matter of both justice and political necessity.”

Mostly, it’s a function of naïveté, said Mark DeCambre in the New York Post. Obama’s plan, which would tax the 50 largest financial firms, is based on a complex formula applied to “covered liabilities”—which means “assets minus things like common stock.” It’ll hurt institutions such as Citi and Bank of America, which make a lot of loans to “Main Street,” while inflicting relatively little pain on Goldman Sachs—“last year’s poster child for Wall Street avarice.” And only a fool believes the tax won’t be passed on to the little guy in higher costs. Targeting bankers’ bonuses is unfair in any case, said Steven Pearlstein in The Washington Post. Many of the bozos who caused the crisis have already been fired, while others in line for “big bonuses work in divisions that had nothing to do with the financial debacle.” Besides, bankers weren’t solely at fault—the entire country benefited from the housing bubble, and was “living beyond its means.”

It’s absolutely true that taxing the banks isn’t “fair,’’ said Christopher Beam in Slate.com. Most of the targeted banks have already repaid what they borrowed, and the plan’s focus on the “big guys” is purely a product of Obama’s need to appease voters still steaming over the bailouts. But the federal government and Obama have budget problems, and this tax is a pretty “efficient” revenue raiser. A year ago, the banks “profited from their own failures on the backs of taxpayers.” Now it will be the other way around. “Two wrongs don’t make a right. But they do make it even.”