Last week, Chairman Dave Camp (R–MI) outlined a new reform proposal that included a punitive tax on some of the largest banks in the U.S. The Chairman should be commended for tackling the complex issue of reforming our tax system, but it’s not at all clear what imposing an arbitrary new tax on financial institutions has to do with pro-growth tax reform.
On the surface, this bank tax appears to be a simple grab for more tax revenue from an easy target—the supposedly evil bankers of Wall Street. But it also seems that there is a strange political undercurrent relating to these banks. For example, it was reported that
[s]ome Republicans privately concede that after the recession and bank bailout, the relationship between Republicans and some parts of the financial sector has changed. One House Republican said the party is “fed up with the big banks’ incessant desire for [government] help, funds, rules to help them, etc.”
If any politicians are truly fed up with big bank cronyism and bailouts, that’s fantastic news. But Congress is just as culpable in the financial crisis as the big banks—they’re responsible for the regulatory framework that gave us the housing and financial meltdowns. Congress certainly can’t go back and undo the damage, but they could help clean up the mess.
There has been at least one good proposal to finally shut down the government-sponsored enterprises (GSEs) at the center of the financial crisis, but House leadership won’t let Members vote on the Protecting American Taxpayers and Homeowners (PATH) Act sponsored by Chairman Jeb Hensarling (R–TX). Instead of fixing any of the regulatory issues surrounding the GSEs, Congress has simply allowed the GSEs to languish under the federal government’s stewardship since 2008. And now there’s talk of “fixing” things by taxing large banks?
This bank tax is perverse from the standpoint of fundamental tax reform and its political message fuels misinformation among the general public. Did the big banks have something to do with the financial crisis? Of course. But so did Congress.
Few people may remember, for instance, that in 2003 former House Financial Services Chairman Barney Frank (D–MA) insisted, regarding the GSEs:
I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.
Congress certainly rolled the dice, and taxpayers are still paying the price. A new tax on banks will ultimately exact an even bigger toll on Americans, but finally winding down the GSEs would actually protect taxpayers.