WASHINGTON – A new tax on large banks is picking up support in Congress as Democrats target financial institutions that benefited from the Wall Street bailout to help pay for their jobs program and other election-year initiatives.
One senator, Chuck Schumer, D-N.Y., said Tuesday he wants to include the bank tax in a bill stiffening financial regulations, an idea rejected by Banking Committee Chairman Christopher Dodd, D-Conn.
Including the bank tax in the financial regulations bill could make it harder to get Republican support because GOP lawmakers have generally opposed the tax. Republican leaders appeared Tuesday to soften their opposition to the financial overhaul bill, praising bipartisan negotiations that continue to take place. And President Barack Obama telephoned newly elected GOP Sen. Scott Brown of Massachusetts seeking support for the measure.
"I'm convinced now that there is a new element of seriousness attached to this, rather than just trying to score political points," said Senate Republican Leader Mitch McConnell of Kentucky.
Dodd and the banking committee's ranking Republican, Sen. Richard Shelby of Alabama, held their second bargaining session of the week Tuesday. They also met to discuss the legislation last week.
"I believe we're going to get ourselves a bipartisan bill," Shelby said.
The tax on bank liabilities, which President Barack Obama first proposed in January, would raise an estimated $90 billion over the next decade. Democrats say the tax is justified to recoup billions spent bailing out Wall Street.
The White House says money from the tax could be used to reduce the budget deficit, but Democrats in Congress are also looking for revenue to pay for several measures, and some see the financial industry as a politically viable target. Democrats want revenue to pay for a one-year extension of a series of popular tax cuts that expired at the end of 2009, as well as several measures designed to create jobs.
"I think the administration proposal is a common-sense way to make sure the taxpayers are repaid," Schumer said Tuesday at a Senate Finance Committee hearing on the bank tax.
The House and Senate have both passed bills that would extend about $26 billion in tax cuts that expired at the end of 2009, though the chambers have been unable to agree on how to finance them. The tax breaks include a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and development and a sales tax deduction that mainly helps people in the nine states without income taxes.
The banking industry argues the new tax would reduce lending and increase fees for consumers, just as the economy is starting to pick up.
"It's certainly easy to demagogue the financial services industry right now," Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, said in an interview.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committees, is planning several hearings to promote the tax. Rep. Sander Levin, D-Mich., chairman of the tax-writing house Ways and Means Committee, said he is working on the issue as well, though he wouldn't commit to endorsing the tax.
In 2008, Congress and former President George W. Bush approved spending $700 billion to bail out financial institutions as the nation's financial system was on the brink of collapse. The Troubled Asset Relief Program was later expanded to include American automakers and homeowners, which would not be subject to the new bank tax.
The TARP program plans to spend a total of $497 billion, according to a report released Tuesday by the program's inspector general. To date, firms have repaid $186 billion, with billions more expected to be repaid in the future, according to the report.
Still, the program is projected to result in a loss to taxpayers of as much as $127 billion.
"We need to think about how we are going to get that money back on behalf of American taxpayers," Baucus said.
Obama's proposed 0.15 percent tax on the liabilities of large financial institutions would apply only to those companies with assets of more than $50 billion — a group estimated at about 50. Administration officials estimate that 60 percent of the revenue would come from the 10 biggest ones.
A key liability for many banks is deposits, though they would be exempt from the tax. The other main liability is debt, which many banks used to finance risky investments, leading to the financial crisis. Obama has argued that a tax on non-deposit liabilities would be akin to a tax on risk, which would dissuade banks fom taking on too much risk.
Representatives of the financial services industry say talk of a new tax is premature because it is not yet known how much money will be repaid without one.
"Taxpayers will make a profit on every bank TARP program," James Chessen, chief economist at the American Bankers Association, said in an interview.