WASHINGTON- Treasury Secretary Timothy Geithner made his case in favor of a bank tax to lawmakers on Capitol Hill Tuesday. The proposal would impose a 10-year, $90 billion tax on the largest financial institutions to recoup money lost from the 2008 bailout.
Geithner said the tax would be levied on banks, broker-dealers and insurance firms that have more than $50 billion in assets. The tax would fully recover costs of the government’s Troubled Asset Relief Program put in place to resolve the crisis.
Geithner faced a bipartisan grilling during a Senate Finance Committee hearing, where members expressed concern over how community banks and small businesses would be affected by the proposed fee.
The Obama administration proposed the tax, officially called the Financial Crisis Responsibility Fee, in January in response to the public outrage over the bank bailouts. The proposed tax is not part of the administration’s planned overhaul of financial regulations and would require congressional approval.
“This is a simple and fair principle: banks, not the taxpayer, should pay for bank failures,” Geithner said.
Representatives at the hearing from the American Bankers Association, Financial Services Roundtable, and the Iowa Bankers Association opposed the bank tax.
James Chessen, representing the American Bankers Association, said he was concerned that smaller banks would also feel the ripple affects of a tax placed on the larger banks.
Geithner said smaller banks not facing the fee could become a more enticing option for banking, should larger banks pass fees onto their customers.
Senate Finance Committee Ranking Member Charles Grassley, R-Iowa, said, “I think it’s going to be tough on small business. We’ve got to be concerned about small businesses not getting loans. I don’t think the bank tax is going to affect or in any way discipline the risky behavior of big banks. I think it’s just a deal to raise money.”
Grassley pressed Geithner over the question of whether the proposed fee included anything except recovering funds from the bank bailout. Grassley asked if there would be a presidential veto of the tax if there were.
Geithner dodged Grassley’s veto question, but said that he and the president feel “very strongly” that proceeds from the tax “should go to reduce the deficit.”
Sen. Orrin Hatch, R-Utah, asked Geithner why banks that repaid their TARP loans should have to pay a new tax.
“It’s not going to seem fair to everyone, and there’s no perfectly fair approach,” Geithner said, adding that 99 percent of U.S. financial institutions would not be subject to the proposed tax.