Obama's Bank Tax - Winners and Losers

In his State of the Union Address, President Barack Obama proposed “a modest fee” on banks that “would pay back the taxpayers who rescued them in their time of need.” In truth, his bank tax would hit financial institutions who have paid back their bailout funds, with interest, while those who haven’t—Fannie Mae, Freddie Mac, General Motors and Chrysler—would get off scot-free.

As Politico reports, Sean Ryan at Wisco Research firm says Obama’s tax would have other effects, too. From Politico:  “[Ryan] predicts the banks will simply pass on the cost of the new fee to their corporate customers, which quite likely will move it along to consumers when possible.”

And more perversely, Ryan notes, the tax revenue will foot the bill for the aforementioned firms that received bailouts, yet haven’t paid anything back:

Since most banks either are in the process of paying back bailout money with interest or have already paid it back, “the loss in the [Troubled Asset Relief Program] that is gone and is never coming back under any scenario is the money extended to GM and Chrysler,” said Ryan. “So this is taxing banks to fund the auto bailout.”

Heritage’s Senior Research Fellow David John says the tax will also make it difficult for banks to resume lending:

While Administration officials urge banks and other firms to start lending again, the new tax … would discourage them from taking risks. The “fee” would apply regardless of a firm’s profitability and would make it even harder for firms recovering from last year’s losses to rebuild the capital needed to back up lending.

John says it’s the “wrong approach to reduce the swollen deficit,” and rightly concludes, “It is a bad idea being used to score political points and should be dropped.”