The so-called Financial Crisis Responsibility Fee is a tax in search of a target. Today, the President declared, “We want our money back.” Yet his proposed tax on financial institutions with assets of $50 billion or more would be levied on the banks that paid back the bailout money – with interest – and on institutions that may not have even taken TARP funds, while most likely exempting Fannie, Freddie and the car companies that still owe billions upon billions to taxpayers.
The hypocrisy doesn’t end there. At a time when President Obama and his administration have been cajoling banks to make more loans, this tax would directly hit that ability, particularly if it’s levied – as the President suggested today – on the level of debt an institution has. This would be contractionary and put a big crimp on economic expansion. And as a multitude of economic studies have shown, taxes on corporation are nearly always passed on to consumers. These taxes would likely hit bank depositors in the form of new fees and lower interest payments.
CEI stood against the bailouts and thought the government should have let poorly managed firms fail. Some of the TARP recipients, like BB&T Corp., hadn’t engaged in the foolish mortgage and credit practices, yet were pressured by the government to take the bailout money so the “bad banks” wouldn’t be stigmatized by taking TARP money. Regardless, being a recipient of a government subsidy should not allow the government to control the firm’s profits and compensation any more than a stadium subsidy should allow the government to cap the wages of superstar athletes.
Finally, by taxing some businesses and not others, and casting the tax as a penalty for past misdeeds, the Obama administration has raised constitutional issues of whether this tax runs afoul of the equal protection clause and is a “bill of attainder” that singles out certain people for punishment. A New York federal court recently ruled that Congress’s singling out of the group ACORN for defunding because of past actions was a punishment that could only be levied by a court, violating the bill of attainder clause. Under this expansive interpretation, this tax too could be considered punishment without trial and also a bill of attainder.