In a bid to toughen up on Wall Street, the Obama administration next month will ask Congress to impose a new tax on big financial firms, with the president arguing they have to pay for sending the world’s financial system into chaos.
Mr. Obama is scheduled to announce the proposal on Thursday, according to a senior administration official who said the penalty is designed to recoup the cost of the Wall Street bailout. The “financial crisis responsibility fee” is expected to raise $90 billion over 10 years by targeting the liabilities of banks with more than $50 billion in assets.
Mr. Obama will make the proposal in his budget for next year.
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“This fee, in addition to raising revenues to ensure that taxpayers are paid back, is also designed to further the financial reform goals of the president by putting the largest burden on those of the largest size who are taking on the most excessive risk,” the official said.
The measure is expected to affect about 50 firms, including roughly 35 U.S. companies and 15 American subsidiaries of foreign firms. About 60 percent of the $90 billion likely would come from the top 10 institutions, according to the official.
The fee would cover all applicable Wall Street banks — including those that did not accept any money from the Troubled Asset Relief Program — as the White House argues all firms benefited from the bailout, even if only indirectly. It would be assessed on a bank’s liabilities, or its assets minus its core capital, the official said, adding that deposits already facing a separate assessment would be exempt.
The proposal comes amid a continuing backlash against Wall Street. Democrats and Republicans in Congress have blasted TARP, and Treasury Secretary Timothy Geithner is taking heat for the government’s role in helping bail out some of the biggest firms while President Bush was still in office in 2008. Meanwhile, polls show Americans worry the government has overreached with its aid to companies.
Under current law, Mr. Obama must submit a plan to Congress to recoup TARP losses by 2013 so that the program does not add to the national debt. Even though his deadline is three years away, the official said Mr. Obama did not want to wait to act.
The federal government recently estimated TARP losses at $120 billion, though that number is expected to change. The White House plan would last for a minimum of 10 years but would be extended if the losses were not recouped.
The fee would not include U.S. automakers, who have received more than $75 billion in TARP funds. The official said that’s because the fee is designed for financial institutions and does not work “for a more industrial company.” The administration likewise determined taxing Fannie Mae and Freddie Mac would “not be productive for the taxpayer.”
American International Group Inc. — which has received $70 billion in taxpayer funds — would be subject to the tax, said the official, who declined to specifically name other likely affected banks.
Outlines of the plan have already sparked some fierce opposition from some banking executives who say they would be forced to pass the costs of a tax onto consumers.
But Mr. Obama and Democrats have been intensely critical of Wall Street firms as they dole out lucrative bonuses while the country remains frozen at 10-percent unemployment. The administration official said firms that pass on the fees would do so at their own peril.
“It will just seem beyond the pale to the typical American to hear of bonus pools in the $10-, $15-, $20-billion level in the coming weeks and then to suggest that the only way they could pay this financial crisis responsibility fee back to the American taxpayer is to pass on the cost to lenders — I don’t think it’s going to happen for competitive reasons and I don’t think it would fly well to consumers,” the official said.