This is a very good read with some info on the potential of a 'back tax' written into the budget. It doesn't mention and transaction tax so hopefully thats good news...
Obama Administration Open To Taxing Financial Firms To Recoup Rescue Funds
By Maya Jackson Randall and Meena Thiruvengadam
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The Obama administration makes clear in its 2010 budget plan that it's open to imposing fees on banks and maybe even the entire financial industry to recoup the costs of the U.S. government's financial rescue efforts, a move that could stir up industry protests.
In the same section of the budget that warns Congress the administration may need to more than double the size of the $700 billion financial rescue effort, the administration also discloses something that, according to one consultant, has "flown under the radar": that President Barack Obama is willing to impose a back-tax on the financial industry.
"The administration has given credence to the idea that Wall Street should at some point pay for this," said Sean West, an analyst with the Eurasia Group, referring to the troubles facing the financial markets and the broader economy. "Once the President asks Congress for more money, he invites scrutiny on how he would make good on that language."
In general, the financial stability section of the budget plan unveiled last month reiterates the administration's commitment to work with Congress so that taxpayers are paid back over time for any additional emergency financial sector aid. It adds that compensation to taxpayers could include requiring dividend payments, warrants, equity and other forms of upside opportunities from those firms receiving assistance.
But what has been overlooked is a line that notes that compensation "could also include a fee or assessment on financial institutions or financial activity, which would have to commence only when the financial system had stabilized and which would be designed to minimize adverse effects on the long- term recovery of our financial system."
The language raises interesting questions about whether the administration would back a fee on the whole financial industry or just the firms that have received federal government aid under the $700 billion financial rescue program Troubled Asset Relief Program, or TARP, which Congress approved last year.
How significant would the fee be?
If government officials decide to pursue a plan to impose fees on the entire industry, that would likely meet strong protests from industry officials, noted Scott Talbott, a senior vice president of government affairs at the Financial Services Roundtable.
"I think you'd have non-participants complaining, of course," he said, adding that he views the "back-tax" plan as a way to protect taxpayers.
The hope, however, is that the markets will recover enough so the fee will never be imposed, he said.
"This provision provides an added insurance policy so that the taxpayers' money is protected against any losses," said Talbott. "The industry is working hard to restore the housing market and the financial services sector so that banks recover and the value of the government's investment grows, making the back-end tax unnecessary."
Still, the law Congress passed last year to make way for the bailout already includes language that requires the president to submit a plan to recoup money from banks if there is a shortfall. The "recoupment" section of the law says the government has five years to submit a report to Congress on the net amount within TARP. If there is a shortfall, "the president shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt," the law says.
What's unclear is if the administration is willing to support an additional tax or some new plan that toughens the law.
Talbott said he doesn't think the administration is envisioning a new fee.
"I don't think so," he said. "I think they're pointing back to what has already been enacted into law."
At this point, however, nothing is clear. Treasury Department officials have yet to respond to requests for more details. And the administration is likely to have to include several carrots along with any request for additional market rescue funds in order to get an angry, critical Congress - and public - to sign off.
"The administration is trying to shore up support, or at least not outright rebellion, from its own party," West said. "This sort of thing would go a long way to winning votes in Congress."
-By Maya Jackson Randall and Meena Thiruvengadam, Dow Jones Newswires; 202- 862-9255,
maya.jackson-randall@dowjones.com
