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    Tuesday, May 21, 2024

    Obama weighing fees on banks

    Washington - The budget that President Barack Obama submits next month is likely to include new fees on financial firms as the White House seeks to recover the full costs of its bailout of the banking industry, officials said.

    The idea of a fee on the nation's biggest banks could be politically popular, coming in a week when those companies begin to announce tens of billions of dollars in bonuses to executives for their work in 2009. Such a fee would also demonstrate the administration's eagerness to decrease the soaring federal deficit, according to administration aides familiar with the developing plan.

    A senior White House official confirmed on Monday that a fee on financial firms is on a menu of ideas the president is considering as he prepares to submit his budget Feb. 2.

    "While we have made great progress in recouping a large portion of the investment, consistent with the law," the official said, "the president will propose a way to recoup additional funds and one of the options is a levy on financial institutions."

    Key details remain unresolved, including how big the fees would be and how to ensure that they are not passed along to bank customers.

    White House press secretary Robert Gibbs declined on Monday to discuss specifics about the president's budget after the proposed fee was first reported on Politico's Web site. But Gibbs said Obama has long favored finding ways to make sure taxpayers are reimbursed.

    In the absence of details, financial industry representatives issued general warnings against placing additional burdens on the sector.

    "The industry is starting to recover, the economy is starting to recover, and a tax would hinder both the industry and the economy - and for that matter, the American people," said Scott Talbott of the Financial Services Roundtable, a trade group that represents the largest financial companies.

    Any new fee would require congressional approval.

    In one approach, the government would collect a one-time fee determined by the size of each firm, similar to the fees collected by the Federal Deposit Insurance Corp. to cover the cost of bank failures.

    Another possible approach levies a tax on financial transactions - a fee collected each time stocks, derivatives and other financial instruments change hands. The United States collected a 0.2 percent tax on selling stock from 1914 until 1966.

    Rep. Peter DeFazio, D-Ore. introduced a bill in early December to impose a 0.25 percent tax on the sale of stocks and certain other financial instruments, potentially raising more than $100 billion a year. Sen. Tom Harkin, D-Iowa, is backing a similar measure in the Senate.

    Their plan is favored by many academics. Lawrence Summers, now the president's chief economic adviser, advocated such a tax in a 1989 academic paper.

    Treasury officials oppose the idea. They warn that banks would try to impose the fee on their customers, shifting the cost partly to the broader economy. A range of legislators and economists share this view, arguing that such a tax would punish small investors and increase the cost of financial services.

    A third option is a tax on bonuses, such as Britain's new 50 percent levy on bank bonuses larger than about $40,000.

    Administration officials view such a tax as largely cosmetic, saying it would not raise much money and would be easy for banks to subvert.

    But just like a tax on transactions, it has an obvious political advantage.

    "In 12.5 seconds bankers would start to figure out a way around it, but the politics of a supertax would still be attractive in light of the generally growing ... well, animosity is the weakest word I can think of," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for clients in the financial industry.

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