On the New Bank Tax
by Reihan Salam
Regular readers know that I have no theological objection to bank taxes. If some kind of FTT proves workable, it could be a good way to close our enormous long-term revenue shortfall. But I do think John Carney of CNBC.com is right to raise concerns about a mystery tax:
Under the new provisions added to the bill, regulators—specifically the newly created Council for Financial Stability—will be empowered to apply the tax according to a “risk matrix” that contains no fewer than 13 factors. Some of these are rather straightforward, such as requiring regulators to consider the size, leverage and reliance on short term funding of a company.Read the rest of the article to get more information on what is, or might be going on with this bill.
But more than a few relate to goals less strictly tied to financial stability. One of the factors to be considered is a company’s importance as “a source of credit for low-income, minority or underserved communities.” Another tells regulators to consider whether the company is an important source of credit for state and local governments.
The bill does not tell regulators exactly how to apply these factors. It could be that banks that do a lot of lending for low-income communities would be assessed a higher fee, since the failure of those banks would be more likely to result in a bailout by government officials concerned that low-income communities would be deprived of important sources of credit.
But that does not seem likely. Far more likely is that banks that lend in ways approved by the regulators—buying municipal bonds from budget-challenged states or lending to politically favored businesses—will be assessed a lower fee. They will be given credit—rather than penalized—for being an “important source of credit” for these constituencies.
Thursday, July 1, 2010
Taxes, taxes, and more taxes!
I get a newsletter from NRO every morning. Some interesting articles always show up. This one is informative.