Posted on 17th Feb 2012 @ 12:07 PM

Two times nothing is still nothing. President Barack Obama’s budget for fiscal year 2013 includes a proposed tax on big banks that would supposedly collect twice as much as the similar bank tax he proposed one year ago. But that earlier tax was never enacted and netted nothing for the Treasury’s coffers. Exactly the same thing will happen to the current proposal. The budget won’t be enacted and the bank tax will die.

Actually, the story is a bit more complicated than that. Obama first proposed a bank tax — a “financial crisis responsibility fee,” in White House parlance — in the fiscal 2011 budget. At that time, it was supposed to bring in $90 billion over ten years. The tax was intended to force the largest financial institutions, which were presumably the biggest beneficiaries of the government’s financial bailout, to pay back the government’s TARP advances.

One year later, it was increasingly clear that TARP would largely pay for itself, and that the big banks in particular were returning their TARP financing in good order. So the White House cut the proposed tax to $30 billion in the fiscal 2012 budget. But in the latest proposal, the tax has been recalibrated to net $60 billion, reflecting in part a decline in the value of TARP’s AIG and General Motors investments.

But while AIG and General Motors are largely responsible for the losses, the proposed tax would be paid by the 32 big banks that have $50 billion or more in assets. The revenues would be used to help finance mortgage relief programs. It’s a nice political morality play — taking from the evil bankers to help the distressed homeowners — but burdening the big banks with an arbitrary tax reflects dubious logic.

Banks React

“The banking industry strongly opposes the $61 billion bank tax included in President Obama’s budget proposal,” American Bankers Association CEO Frank Keating declared. “Despite claims to the contrary, the facts on TARP are very clear,” he said. “Taxpayers have profited $13 billion from their investments in banks through the program and Treasury predicts they will see a lifetime positive return of more than $20 billion” without the proposed tax. “Given that non-bank programs are responsible for all of TARP’s losses, this would simply be an arbitrary tax with no regard to where losses actually occurred.”

The fact is the proposal now is pure politics. Congress has never enacted an Obama budget, instead relying on short-term continuing resolutions to keep the government operating. These resolutions have been enacted only after great political turmoil Nothing as controversial as the bank tax would be acceptable to Republicans in the current political climate, and it is not clear that even most Democrats strongly support the proposal.

The big banks are being used as targets in a political mud-slinging campaign.

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