Obama Must Confront Complexity in Structuring New Fee
President Barack Obama plans to raise as much as $120 billion through a fee on financial institutions to help recoup losses from the Troubled Asset Relief Program and reduce the deficit, according to an administration official.
The White House hasn’t settled on the final structure of the fee and how to target the big banks that have returned to profitability, said the official, who request anonymity.
The plan is to have revenue from the fee dedicated to deficit reduction and to cover the amount that the Treasury Department estimates it will lose from TARP, which is $120 billion. Details will be contained in the fiscal 2011 budget that Obama will submit to Congress next month, the official said.
The government’s $700 billion ban rescue plan contributed to a record $1.4 trillion deficit last year.
Tax experts, who discussed the possibilities before the president’s plan was disclosed, say all of the administration’s structural options, which include an income surtax, an excise tax, or a fee pegged on the value of assets or some other measure, are likely
“Any new tax is always more complicated than the designers anticipated,” said Ed Kleinbard, the former staff director of Congress’ non-partisan Joint Committee on Taxation who is now a law professor at the University of Southern California. “When the numbers involved are this large, it’s very difficult to design on the fly.”
‘Unintended Consequences’
Kleinbard said the United Kingdom is already struggling to make its 50 percent tax on bank employee bonuses of more than 25,000 pounds ($40,400) stick. Some U.K. banks are moving to absorb the tax while London Mayor Boris Johnson frets that higher taxes may drive 9,000 bankers out of the country.
“There’s always a substantial risk of unintended consequences and the risk of simple ineffectiveness,” Kleinbard said.
Details of the plan will be contained in the fiscal 2011 budget that Obama will submit to Congress next month, the administration official said. The proposal won’t include a tax on Wall Street bonuses or financial-services transactions, Politico reported yesterday, citing unidentified officials.
source: businessweek
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