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In the eye-for-an-eye political culture of Washington, President Barack Obama's bank levy is a bona fide populist hit.

Channelling his fury about "massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people," Mr. Obama is playing to the crowds baying for banker blood in justifying his plan to touch the biggest banks in the United States for up to $90-billion (U.S.) in tax over the next 10 years to cover losses on the taxpayer-financed bailout that saved the sector. Mr. Obama is also opening himself to critics who rightly say that taxation shouldn't be about revenge.

It's a shame, because the rhetoric of retribution obscures the fact that the tax is a sounder policy tool than many people are giving the administration credit for, and one that at least deserves an adult debate.

Somebody has to cough up the cash to close the deficit hole that the bailout of financial firms is creating, a tally estimated at $90-billion that the worst basket cases will never pay back to the Treasury.

Unless he wants to add it to the burgeoning national debt, Mr. Obama has the two stark choices eternally facing politicians: cut spending or raise taxes.





Given that nobody in Washington seems to have the intestinal fortitude to reduce the budget - perhaps rightly so given that government spending is the main thing supporting economic growth - the fallback is a tax.

Every American is already paying for the financial crisis in myriad ways, chiefly lost jobs and minuscule interest rates on their savings courtesy of the zero-interest-rate policy the Federal Reserve has adopted to cope with the recession.

Many will face higher state and municipal taxes in coming years as those governments find ways to offset their budget woes. Does it make sense to add to that burden with any more at the federal level, or to tack the cost of the bailout onto the federal debt that every American is responsible for?

There's no rationale, similarly, for broader business taxes.

The sectors that brought the country's economy and the financial system to near ruin were real estate and banking, and the ones that benefited most from the bailouts were autos and, once again, banking.

There's no money in real estate or cars, and likely won't be for a good long time, so the only logical place to turn is the financial sector.





Though many of the survivors have become historical revisionists and are loath to own up to it, almost all U.S. banks played a key role in the blowup, surviving in recognizable form thanks to taxpayer help and now reaping large profits from that same zero-interest-rate policy that hurts mainstream savers by lending out the cash at record margins.

On top of that, banks get federal support (once implicit, now a whole lot more explicit) and the ability to make a lot of money from their position as government-sanctioned middlemen with the right to borrow at the cheapest rates. Asking for a little payback now and then doesn't seem so outlandish.

Tying the tax bill to the amount of risk a bank takes also plays into the overall theme of encouraging banks to take a harder look at how they do business, another broad policy goal that's worth pursuing.

Will it work? That's debatable.

There may be loopholes and unintended consequences, and banks with their legions of lawyers and lobbyists will no doubt finagle around the measure, just as people ignore speed laws and all manner of other attempts to keep us from doing dumb things. That doesn't make them less worthwhile.

Others critics will point to the small amount of the tax and say why bother? With the deficit this year poised to hit $1.5-trillion in the U.S., the average expected annual take of $9-billion from the banks will pay for just three days of government spending overruns.

Still, $9-billion could do a lot of good for the recession ravaged. It would be enough to cover the annual budget of the U.S. Forest Service, so at least all the unemployed could spend all the new-found free time they owe to the subprime crisis camping in national parks.

There would be enough left over to increase federal college tuition aid by about 10 per cent to help the jobless and poor get more education.

Compare that to the $150-billion or so that the employees at the biggest banks and securities firms are expected to take home in bonus pay this year - enough to slash the federal deficit by 10 per cent.

Maybe the best justification for the tax comes from the bankers themselves.

The big financial firms argue that they shouldn't cut bonuses to their many good and responsible employees when only a handful of careless ones took the risks that led to the financial debacle.

By the same logic, everyday Americans shouldn't have to pay for the sins of the few firms on Wall Street where those people worked.

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*Editor's note: An incorrect figure for General Electric Capital Corp. appeared in Friday's paper. The error has been corrected in this online version.

BANK BREAKDOWN

Estimated annual cost of special U.S. bank tax

U.S. banks

Citigroup Inc

$2.2-billion

JPMorgan Chase & Co.

$2.0-billion

Bank of America Corp.

$1.7-billion

Goldman Sachs Group, Inc.

$1.2-billion

Morgan Stanley

$992-million

General Electric Capital Corp.

$786-million

Wells Fargo & Co.

$581-million

AIG Inc.

$389-million

Bank of NY Mellon Corp.

$210-million

State Street Corp.

$200-million

U.S. Bancorp

$134-million

American Express Co.

$127-million

Capital One Financial Corp.

$123-million

PNC Financial

$98-million

CIT Group Inc.

$88.2-million

Canadian banks

(with U.S. subsidiaries)

TD Bank

$100-million

Source: Credit Suisse

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
AXP-N
American Express Company
-0.03%227.69
BAC-N
Bank of America Corp
+0.29%37.92
C-N
Citigroup Inc
+0.78%63.24
COF-N
Capital One Financial Corp
+3.03%148.89
GE-N
General Electric Company
-2.55%175.53
GS-N
Goldman Sachs Group
+0.59%417.69
MS-N
Morgan Stanley
+0.71%94.16
STT-N
State Street Corp
+1.48%77.32
TD-N
Toronto Dominion Bank
-0.43%60.38
TD-T
Toronto-Dominion Bank
-0.63%81.75
WFC-N
Wells Fargo & Company
+0.61%57.96

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