Sunday 20th of October 2019

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President Considers Tax On Big Banks

Taxation on large U.S. banks may be the way that the federal government recovers losses as high as $120 billion from the money spent to bail out the ailing financial system.

President Obama is said to be favoring taxes on bigger institutions among the various options being considered as he and his staff prepare his proposed budget for the next fiscal year. His plan is scheduled for release next month.

The White House is looking at the new tax as one of the ways to trim the federal budget, now at levels last seen in World War II. Also, it wants to send a message that the risks undertaken by financial institutions in the past will no longer be tolerated. Such risks nearly led to a terminal meltdown of Wall Street, which in turn triggered the $700 billion financial rescue fund known as the Troubled Asset Relief Program.

Americans have expressed outrage that the same banks they helped bailed out now say they have record-breaking profits and are about to reward executive bonuses at a time that the nation’s unemployment rate has hovered around the 10 percent mark. This has translated into pressure on the president to do something to prevent rewarding the companies.

Treasury Secretary Timothy F. Geithner already has been criticized by both parties for not being tough enough on the financial community.

The banking community is shocked that its members may have to deal with such a measure as taxation. Their lobbyists point out that the banks are paying back the loans along with interest.

A tax would be “a hit on banks that will decrease their ability to lend,” said Edward L. Yingling, president and chief executive of the American Bankers Association. He noted the president recently turned to institutions to get them to fund more loans for small businesses that have been struggling to get credit.

The sources of the $120 billion in losses actually are U.S. automakers and their financial divisions, the insurance firm American International Group and programs created to head off home foreclosures.

Regardless, the institutions are getting Washington’s attention. The taxes under consideration by the president would be based on the size of the institutions and the amount of risk undertaken in its loan portfolio. Another option is a tax on the banks’ profits.

Also, on Wednesday a bipartisan panel meets to investigate the causes of the financial problems. Testimony is expected from leaders of Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley.