Taxwriting chairs mull application of proposed financial institutions fee

House Ways and Means Committee Chairman Sander Levin, D-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont., recently suggested that President Obama's proposed fee on financial institutions to recoup funds doled out through the Troubled Asset Relief Program (TARP) should not be limited to direct TARP recipients.

As proposed in the president's FY 2011 budget package, a fee of 15 basis points (0.15 percent) would apply to the covered liabilities of financial firms that hold assets in excess of $50 billion. Covered firms would include banks, thrifts, bank holding companies, insurers, brokers, securities dealers, and other companies that own or control a depository entity. Covered liabilities would be assets less tier 1 capital, assessable deposits, and insurance policy reserves.

The fee would begin July 1, 2010, and continue for at least 10 years to offset the cost of TARP. It would apply to firms that meet the asset test, whether or not they received TARP assistance. The proposal would raise an estimated $90 billion over 10 years.

Speaking at the National Press Club in Washington on April 19, Levin indicated that House taxwriters would be taking a closer look into the proposal, and hinted that it would be acceptable to impose the fee on institutions that benefitted from the "essential need to rescue our economy," not just those that directly received funds through TARP.

For its part, the Senate Finance Committee examined the bank tax proposal on April 20 at the first of a series of planned hearings. Baucus pointed out that Congress, when drafting TARP legislation, confronted the possibility that the U.S. Treasury may not recoup all the money distributed to financial institutions through the program. TARP Special Inspector General Neil Barofsky testified that recent estimates from the Office of Management and Budget put eventual TARP losses at $127 billion, while the Congressional Budget Office pegs those losses at $109 billion.

Baucus, like Levin, indicated that he would prefer the fee to apply to any institutions that benefitted from the establishment of TARP, and not just direct recipients.

But ranking Republican Charles Grassley of Iowa countered that over the past months, estimated TARP losses have been shrinking consistently. He questioned the reasoning behind proposing such a tax now, and argued that it would be better to evaluate the situation in 2013, when the Emergency Economic Stabilization Act of 2008 mandates a congressional review of TARP losses. Grassley also emphasized that all monies received from a tax should only go towards paying down the deficit.

Finance Committee member Charles Schumer, D-N.Y., stated that the bank fee is a "common sense" way to recoup money for taxpayers, and that it should be included in the financial regulatory reform legislation currently scheduled for consideration in the Senate. Baucus indicated that he would be reluctant to move on such a proposal until the Finance Committee has completed its hearings on the issue. (Dates of future hearings have not yet been announced.)

Given that the financial regulatory reform bill does not currently include a tax title, and the fact that revenue measures must originate in the House, it is likely Schumer will encounter resistance if and when he offers his proposal.