Letter to Director Orszag and Secretary Geithner Expressing Concern with a Potential Bank Tax
January 13, 2010
Dear Director Orszag and Secretary Geithner:
The U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size and region, is strongly concerned with a potential bank tax and the adverse impacts it may have upon economic growth and job creation.
Recent press reports indicate that the soon to be released Fiscal Year 2011 budget may include a bank tax. This tax could be levied as a surcharge or a fee based upon the liabilities held by a bank. Additionally, varying rationales for the bank tax have been presented including the recoupment of funding provided through the Troubled Asset Relief Program (TARP) or tamping down on risky behavior.
While the Chamber agrees that TARP funds should be recouped and excessive risk curbed, we are extremely concerned about a proposed bank tax because it may restrict the liquidity needed by small businesses to fuel job creation and economic growth. Such unintended consequences may cost the government more than it hopes to raise with the imposition of such a levy. The Chamber's detailed concerns are listed below.
Job Growth and Economic Expansion – Historically, as the economy comes out of a recession, small businesses dominating Main Street, USA create a majority of job growth. According to the Small Business Administration in 2003-2004, over 1.6 million of the almost 1.7 million new jobs were created by businesses with 1-19 employees. Small businesses need access to capital.
The imposition of a bank tax would restrict the availability of capital. A tax on liabilities is a tax on loans and the more loans that are written, the more taxes that would have to be paid. A surcharge would also reduce the capital available for job creators.
TARP Recoupment – The Chamber supported the creation of the TARP program in order to prevent a collapse of the financial system. Additionally, the Chamber has supported efforts to ensure accountability for TARP funds and advocated to allow firms to repay the assistance received.
While a good deal of TARP funding has gone to non-bank sources, some financial institutions have repaid the taxpayer assistance with a substantial return to the Treasury Department. In fact, Bloomberg News reported that the Treasury Department realized a 23 percent return on the TARP repayment by Goldman Sachs. For those firms where the Treasury has received a repayment of assistance, the Chamber would recommend that a tax be offset by the profit realized by the federal government, as the Treasury Department has more than recouped its investment within those institutions.
Additionally, an imposition of a tax upon firms still within the TARP program would blunt the intent of TARP to stabilize the financial system and potentially endanger the ability of taxpayers to recoup TARP funds.
Competitiveness – America's financial institutions now operate within a global economy and must compete with firms in Asia and Europe. By imposing a bank tax, capital will flee American institutions and go to those overseas institutions that have lower obstacles to formation. Additionally, such a tax will be passed onto either a firm's customers or their shareholders.
Finally, the imposition of the tax may be arbitrary in nature. Reports suggest that 20 large firms may be taxed, while others would not. It is also unclear whether financial institutions that did not participate in TARP, such as mutual funds, would be impacted.
The Chamber believes that a bank tax as outlined in reports is misguided and could have severe adverse impacts upon the economy and the ability of the United States to recover from the recession and create jobs. We respectfully request that a bank tax be reconsidered and a study undertaken to better understand the unintended consequences that could result from such a proposal.
R. Bruce Josten