Since the announcement by President Obama earlier this week that he plans to tax top banks to recover some losses from the bailout program, many industry analysts have been claiming that it will hinder, rather than help, economic recovery.
Top Two US Banks Pay Most
Banks like Bank of America® and JPMorgan Chase, who have become profitable in the new year largely due to the assistance of TARP funds, are expected to bear the brunt of the new tax, paying as much as $1.5 billion each. Chase CEO Jamie Dimon expressed his concern with the tax proposal, saying that “Using tax policy to punish people is a bad idea. All businesses tend to pass their costs on to consumers.”
Bank of America® could end up paying as much as 22% of its projected 2010 earnings.
Punishment for Profits?
Many in the financial industry have claimed that this is a politically motivated action, based on the fact that Wall Street is extremely unpopular and this tax could be seen as a way for the Obama Administration to maintain favor in the eyes of the American people. However, President Obama pointed out in his speech that if banks are shirking the responsibility of defraying the economic costs of the financial crisis, then they are placing that burden back onto the taxpayers who provided the money to bail these banks out in the first place.
Senate Battle Inevitable
Regardless of the motivations behind the proposal, the implications that it could have for the economy are inevitably going to be debated in the senate. Already, Treasury Secretary Timothy Giethner has expressed his concern about the effect such a tax policy could have on economic growth and job creation. A tax on banks could make it harder for businesses to borrow money, meaning that they will be less likely to have the necessary funds to grow and take on new employees.