U.S. President Barack Obama reportedly seeking tax on biggest banks

The Associated Press ~ staff The News
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WASHINGTON - Mindful of soaring deficits and an anti-Wall Street mood, U.S. President Barack Obama wants a new 10-year tax on the country's largest banks to cover a projected $117 billion shortfall in the government's financial crisis bailout fund.
The president planned to propose Thursday a levy of 15 basis points, or 0.15 per cent, on the liabilities of large financial institutions to make sure every dollar spent from the $700 billion Troubled Asset Relief Program to rescue Wall Street firms, auto companies and mortgage holders is either repaid or paid for. Congress would have to approve the tax.
A senior administration official said the tax, which officials are calling a "financial crisis responsibility fee," would apply only to financial companies with assets of more than $50 billion. Those firms - estimated to amount to about 50 institutions - would have to pay the fee even though many did not accept any taxpayer assistance and most others already paid back their government infusions.
The official said banks could pay for the tax by tapping their generous executive bonus pools. The administration official described the plan on the condition of anonymity because it had not been officially announced.
At issue is the net cost of TARP, the fund initiated by the Bush administration to help financial institutions get rid of toxic assets. The fund has since evolved, helping not only the banking sector, but also autos and homeowners.
Insurance conglomerate American International Group, the largest beneficiary with nearly $70 billion in bailouts, would have to pay the tax. But General Motors Co. and Chrysler Group LLC, whose $66 billion in government loans are not expected to be fully repaid, would not be subject to a tax.
Bankers did not hide their objections.
"Using tax policy to punish people is a bad idea," Jamie Dimon, chief executive of JPMorgan Chase & Co., told reporters even before details of the tax were known.
"It would be very hard for the industry to pay for the auto companies," Dimon added. "I mean, at one point you have to be a little fair."
So far, the Treasury has given $247 billion to more than 700 banks. Of that, $162 billion has been repaid and banks have paid an additional $11 billion in interest and dividends.
In Congress, the idea was receiving a predictable partisan reaction, with Democrats embracing it and Republicans rejecting it.
"Look, the financial institutions collectively, particularly the larger ones, caused problems by their errors - their errors of judgment, their irresponsibility, in some cases their skating around dishonesty," said House Financial Services Committee Chairman Barney Frank, D-Mass.
"I think it is entirely reasonable to say that the industry that, A, caused these problems more than any other and, B, benefited from the activity, should be contributing," he said.
Republican Rep. Jeb Hensarling of Texas, a member of Frank's committee, ridiculed the idea. "To think that banks will loan more money if you tax them is beyond economic ignorance," he said.

Organizations: American International Group, General Motors Co., Chrysler Group LLC JPMorgan Chase & Co. Democrats Republicans House Financial Services Committee

Geographic location: U.S., WASHINGTON, Texas

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