President plans fees on financial institutions
(15 January 2010 – USA) President Barack Obama is planning a fee on financial institutions aimed at recouping losses suffered through the Troubled Asset Relief Program (TARP).
Bloomberg reported that while The White House has not yet settled on the plans to raise as much as US$120 billion (A$129 billion) over the next ten years, it is looking to target banks that have returned to profitability.
The details to be contained in the fiscal 2011 budget, to be submitted to Congress next month, indicate plans to have revenue from the fee dedicated to last years US$1.4 trillion deficit reduction and to cover the US$120 billion the Treasury Department estimates it will lose through the US$700 billion rescue plan.
According to a US Treasury Department report released, US banks have already repaid around US$165 billion, letting the government recoup around two-thirds of its total investment in the banking system.
However, tax experts are not sold on the ability for the plan to succeed, indicated that the administration’s options, which include income surtax, an excise tax, or a fee pegged on the value of assets or some other measure, are likely to be so porous that financial institutions will find ways to sidestep them.
Tax experts also agree that the options, no matter what is chosen, will only encourage companies to reduce their use of that particular method.
Ed Kleinbard, law professor at the University of Southern California, said that any new tax is always more complicated than the designers anticipate, when numbers involved are this large it makes it a very difficult design to fly.
Mr Kleinbard also highlighted the fact that the United Kingdom is struggling to make its tax on bank employee’s bonuses of over £25,000 (A$43,000) apply. Some banks are looking to absorb the tax over fears that it will drive over 9,000 bankers out of the UK to more tax friendly countries.
There is always a substantial risk of unintended consequences and the risk of simple ineffectiveness, Mr Kleinbard added.
With the pressure on bankers’ bonuses continuing, The White House is also continuing to encourage financial firms to give bankers their bonuses in stocks to encourage them to think about the risks associated with their decisions and to ensure the long term health of the banking industry.
The details to be contained in the fiscal 2011 budget, to be submitted to Congress next month, indicate plans to have revenue from the fee dedicated to last years US$1.4 trillion deficit reduction and to cover the US$120 billion the Treasury Department estimates it will lose through the US$700 billion rescue plan.
According to a US Treasury Department report released, US banks have already repaid around US$165 billion, letting the government recoup around two-thirds of its total investment in the banking system.
However, tax experts are not sold on the ability for the plan to succeed, indicated that the administration’s options, which include income surtax, an excise tax, or a fee pegged on the value of assets or some other measure, are likely to be so porous that financial institutions will find ways to sidestep them.
Tax experts also agree that the options, no matter what is chosen, will only encourage companies to reduce their use of that particular method.
Ed Kleinbard, law professor at the University of Southern California, said that any new tax is always more complicated than the designers anticipate, when numbers involved are this large it makes it a very difficult design to fly.
Mr Kleinbard also highlighted the fact that the United Kingdom is struggling to make its tax on bank employee’s bonuses of over £25,000 (A$43,000) apply. Some banks are looking to absorb the tax over fears that it will drive over 9,000 bankers out of the UK to more tax friendly countries.
There is always a substantial risk of unintended consequences and the risk of simple ineffectiveness, Mr Kleinbard added.
With the pressure on bankers’ bonuses continuing, The White House is also continuing to encourage financial firms to give bankers their bonuses in stocks to encourage them to think about the risks associated with their decisions and to ensure the long term health of the banking industry.
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