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Obama proposes to tax largest financial firms

'We want our money back and we're going to get it,' Obama says as he calls for a fee on the 50 largest institutions to recover projected losses from the government bailout.

January 15, 2010|By Jim Puzzanghera

Reporting from Washington — In proposing a new tax on large financial firms, President Obama sent a clear message to bank executives about responsibility for the government's $117 billion in projected bailout losses: The bucks stop with you.

"We want our money back, and we're going to get it," Obama said in a short, sharply worded White House speech Thursday. "If these companies are in good enough shape to afford massive bonuses, they surely are in good enough shape to afford to pay back every penny to taxpayers."

The move would generate about $9 billion a year for at least 10 years to make up for losses in the $700-billion Troubled Asset Relief Program and, in doing so, restrain the soaring federal budget deficit. The measure also could provide political benefits for the White House, a desire evident in the name Obama gave to the proposed tax -- the Financial Crisis Responsibility Fee.

The attempt to recoup taxpayer money from the largest financial institutions could mark a strong populist distinction in a midterm election year between Democrats, who have railed against Wall Street's return to its free-spending ways, and Republicans, who face being branded as favoring the big banks if they fight the tax, as they have done with the administration's attempts to overhaul financial regulations.

Obama laid out battle points both legislatively and politically.

"We cannot go back to business as usual," he said. "And when we see reports of firms once again engaging in risky bets to reap quick rewards, when we see a return to compensation practices that seem not to reflect what the country has been through, all that looks like business as usual to me. The financial industry has even launched a massive lobbying campaign, locking arms with the opposition party, to stand in the way of reforms to prevent another crisis. That, too, unfortunately, is business as usual."

Democrats quickly picked up the theme. House Speaker Nancy Pelosi and some key party lawmakers all endorsed the idea. Some Democrats also pushed legislation that would go further by slapping a special tax on large bonuses.

And in Massachusetts, where a surprisingly close special election next week to fill former Sen. Ted Kennedy's seat threatens to derail Obama's healthcare legislation, the Democratic candidate immediately challenged her Republican opponent to support the bank tax.

"Now is the time for Scott Brown to tell us what side he's on, and who he wants to fight for," said Massachusetts Atty. Gen. Martha Coakley, who stressed her support for holding "the largest Wall Street firms accountable for their abuses that caused millions of people to lose their jobs."

But Brown, a state senator, like some other Republicans, was undaunted. A spokesman said he opposes raising taxes "in the midst of a severe recession." And other Republican opponents of the tax said it was likely to restrict lending when many businesses are desperate for loans and would ultimately be passed on to already over-taxed consumers.

"This proposed tax increase is yet another job-killing policy that makes little economic sense," Sen. John Cornyn (R-Texas) said.

The U.S. Chamber of Commerce called the tax "misguided." And lobbyists for large financial institutions called it unfair and potentially damaging to the economy.

"Two-thirds of the TARP investment to banks has already been paid with a handsome profit to the taxpayers," said Rob Nichols, president of the Financial Services Forum, a trade group of the chief executives of 18 of the largest financial institutions. "We should just be very cautious about advancing any public policy -- a tax, a fee or otherwise -- that would potentially impair lending or credit availability at a time of economic fragility."

The new fee would have to be approved by Congress, and could run into opposition from moderate Democrats as well as Republicans.

The tax would hit about 50 of the nation's largest financial institutions, administration officials said. The tax would be an annual 0.15% fee on a company's liabilities, excluding domestic deposits, and would be assessed on banks, insurance companies and other financial firms with at least $50 billion in assets.

A fee based on liabilities would help discourage large financial institutions from taking on too much risk, administration officials said.

About 60% of the fee would be raised from the 10 largest financial firms, among them some of the biggest names from the financial crisis, including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley.

The levy could make the banks subject to it less competitive with smaller rivals that wouldn't have to pay it, said Bert Ely, an independent banking consultant, predicting the affected banks would work hard to get around the tax.

"I think this is 98% driven by politics," he said.

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