TAX NEWS - 2010

US Tax: Bank Tax Tossed from Financial Reg Reform

Sen. Scott Brown, R-Mass., threatened to vote against financial regulatory reform if it included what he called a "$19 billion bank tax." That tax is now off the table, but what's in its place may not be much better for banks.

Tuesday evening the conference committee that drafted the final version of the overhaul bill -- which thought it had finished its work last week -- reconvened to find other ways to pay for the legislation. The group of lawmakers from the House of Representatives and Senate ended up scrapping the bank tax. Instead, the bill would prematurely end the Troubled Asset Relief Program (the $700 billion bailout program from 2008), using some TARP money to help pay for the financial regulatory overhaul. In addition, the reform bill will raise the premium that banks pay to the FDIC's Deposit Insurance Fund. Financial firms with less than $10 billion in assets wouldn't be subject to the increase.

Is this a better deal? Depends on how you look at it. Bank tax or no bank tax, banks will still end up paying. In a statement Tuesday evening, Edward Yingling, president and chief executive officer of the American Bankers Association, described the premium increase as "yet another regulatory cost imposed on the many traditional banks that had nothing to do with causing the financial crisis." He says he's concerned about using FDIC premiums as a means to generate revenue for the federal government, particularly without any debate. He says the new proposal is still "a tax on bank capital."

The "bank tax" would have imposed fees -- no more than $19 billion by 2015 -- on large financial institutions and hedge funds to help pay for Wall Street reform. The Congressional Budget Office estimated that while the fees would have amounted to about $18 billion, the measure actually would have brought in about $13.5 billion in revenue because banks would absorb some of the costs as business expenses.

Brown and other Republicans will have some time to think about whether they'll support the revamped bill. Because the body of Sen. Robert Byrd will lie in repose in the Senate chamber this Thursday, it's not likely the Senate will vote on financial regulatory reform before the week-long July 4 recess.