"Asking liberals where wages and prices come from is like asking six-year-olds where babies come from. " Thomas Sowell BACKGROUND:
"Asking liberals where wages and prices come from is like asking six-year-olds where babies come from. " Thomas Sowell
On January 14, 2010, President Obama is expected to announce a new plan to increase the cost of credit and further drain the economy of capital needed by small businesses and entrepreneurs to stay in business and create jobs. The plan calls for a new tax on the financial services industry. The tax will be touted as necessary to recoup $120 billion in expected funding losses from TARP recipients—mainly AIG, bailed out and propped up by a plan overseen by then-president of the Federal Reserve Bank of NY, Tim Geithner, and Chrysler and GM, benefitting the United Auto Workers, a political ally of the Obama administration and congressional Democrats.
Some institutions targeted by the tax have repaid or are on schedule to repay TARP monies, including interest. Additionally, some targeted institutions were highly capitalized and did not need TARP funds, but participated in TARP under duress by the Treasury Department and government regulators. For example, on June 18, 2009, the Charlotte Observer reported, “Seven months after it accepted $3.1 billion from the government, BB&T Corp.—a longtime opponent of big government—repaid the money with interest Wednesday…BB&T said it accepted TARP loans despite the bank's philosophy because regulators strongly urged it to. The bank said Wednesday that it had paid $93 million in interest on the government loan and indicated that it wasn't happy about the expense or the distraction.” Unfortunately, BB&T and others will still be required to pay the Democrat tax.
ISSUES OF CONCERN:
Increases the Costs of Doing Business: TARP recipients were deemed ineligible for Net Operating Loss (NOL) tax savings late last year, even if the recipients repaid TARP funds. Therefore, the proposed tax would represent a triple whammy for financial institutions—interest on TARP funds, no NOL tax savings and the proposed tax. The benefit of the NOL is to accelerate the tax use of the losses at a time when they can be of most benefit to companies and the economy, thus providing stimulus to the economy by providing taxpaying businesses with funds that will be used to hire employees, reduce debt, increase lending, or invest in capital improvements.
Increases the Cost of Credit: As the costs of business increase and banks try to make a profit for their shareholders, these costs will undoubtedly get passed on to consumers, including small businesses and families, which rely on many types of credit products to finance their day-to-day operations and household budgets. Tom Donohue, CEO of the US Chamber of Commerce, representing over three million businesses across the nation, speaking on the Democrats’ proposed tax stated, “It’s a bad idea… If you don’t pass it on to the consumer, then you’re going to have smaller profits. If you have smaller profits, then your stock is going to go down. If your stock goes down, then everybody that holds your stock may need to sell it, or they are going to have less money in their 401K or in their pension plan or in their investment deals. There are so many unintended circumstances when you try and gerrymander the economic system to try and meet your political objectives…”
Destroys Jobs on Main Street: The goal of TARP was to thaw the frozen credit markets and enable the banks to lend more, especially to businesses on Main Street. Yet, this tax would discourage lending to those on Main Street. By draining capital out of the financial system and wasting it on misguided government spending with double digit unemployment, the albatross weighing down the economy gets even heavier.