(CNSNews.com) – Even banks that have already paid back their portion of the $700-billion federal bailout would be subject to a special tax under a White House proposal that opponents call punitive but the administration says is required to make taxpayers whole. But the failed and government-controlled mortgage giants Fannie Mae and Freddie Mac would not be subject to the tax, although they also received bailout money.
President Barack Obama on Thursday announced a plan to impose a new tax on banks to cover an expected $117 billion shortfall in the Troubled Assets Relief Program (TARP). The tax would apply to 50 financial institutions, which have assets of more than $50 billion, and would constitute a 0.15 percent tax on the TARP liabilities of these institutions.
However, auto companies General Motors and Chrysler, which are not expected to pay back all of their $66 billion of TARP money, will not be subject to the tax. Also exempted from the tax would be mortgage institutions Freddie Mac and Fannie Mae, which are largely responsible for the financial meltdown in 2008.
The proposed tax would take effect on June 30 and reportedly collect $90 billion over 10 years.
In his address Thursday, the president tapped into resentment over bonuses given to bank executives who were part of the bailed out institutions.
“My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people who have not been made whole, and who continue to face real hardship in this recession,” Obama said.
The $700 billion TARP bailout bill was enacted in late fall 2008 as a means of rescuing financial institutions. It was later extended to the auto companies.
Republicans argue that a TARP tax on the banks would be passed on to consumers, either through more consumer fees or through frozen credit.
“Another day and another mixed economic message from this administration,” said Rep. Tom Price of Georgia, chairman of the Republican Study Committee, in a statement: “The economic uncertainty that the president continues to generate leaves us perilously further from a sustainable recovery. While the President says he wants lending to increase, this tax increase will only limit access to credit for American families and small business owners.”
White House spokesman Robert Gibbs declined to say how popular the proposal would be in Congress, where reportedly some Democrats and most Republicans oppose the idea. Gibbs said that Republicans in Congress can decide “if you want to be on the side of the big banks.”
Price said just the announcement of the idea is likely to “slow the flow of credit further.”
“It seems this tax increase is driven more by revenge than recovery,” Price said. “The fact is, corporations don’t pay taxes; they collect them from their customers. And the last thing the American people need is Washington digging deeper into their pockets. A return to an environment of economic growth will require the will to remove Washington from the equation and provide our markets some certainty in the rules. Until the While House recognizes that a key to stable growth is predictability, this trying economy will be here to stay.”
Gibbs denied that the tax hike was punishment for the banks.
“This is designed for the biggest banks,” Gibbs said. “It’s to make sure the American taxpayer won’t be left holding the bag.”
Gibbs added that the administration has not “absolved” the auto industries’ role in the financial fallout, but stressed that the financial problems of both GM and Chrysler resulted from the overall poor economy.
On Fannie Mae and Freddie Mac, Gibbs said these institutions could not afford to pay the government back.
“Fannie and Freddie are not at the health at this point that would allow them to do that,” Gibbs said.