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February 28, 2014

Taxing Big Banks Won't Make Them Safer

“Representative David Camp of Michigan wants to lighten the burden that some large financial institutions place on U.S. taxpayers. Unfortunately, the bank tax he proposes might actually make things worse.”

“To be clear: As legislation, Camp’s plan appears doomed, despite some admirable aspects, so it’s unlikely this tax will ever be levied. All the same, it’s worthwhile to examine the flawed theory that Camp’s supporters use to justify the tax.”

“Under his plan, systemically important companies such as JPMorgan Chase & Co., Goldman Sachs Group Inc. and American International Group Inc. would pay a quarterly excise tax of 0.035 percent on assets exceeding $500 billion. This would bring in about $86 billion over 10 years, and thus help Camp lower tax rates without increasing the federal budget deficit.”

“At first glance, this might look like fair payback. When the government came to the banks’ rescue during the financial crisis of 2008 and 2009, it put hundreds of billions of dollars of taxpayer money at risk. This helped train the market to expect similar government support in future crises, so that large banks can borrow money at lower cost than they otherwise would — a taxpayer subsidy estimated to be worth tens of billions of dollars a year. On that background, Camp’s 0.035 percent tax looks like a small price to pay.”

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Read full Bloomberg View article here.

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