One key lawmaker, Sen. Chuck Schumer, D-N.Y., said Tuesday he wants to include the bank tax in a bill stiffening financial regulations that could come up for a vote in the Senate soon.
President Barack Obama has proposed a tax on bank liabilities that would raise an estimated $90 billion over the next decade. Democrats say the tax is justified to recoup billions spent bailing out Wall Street.
"I think the administration proposal is a common-sense way to make sure the taxpayers are repaid," Schumer said Tuesday at a Senate Finance Committee hearing on the bank tax.
Democrats are looking for money to pay for several measures, and some see the financial industry as a politically viable target to raise revenue. Democrats want revenue to pay for a one-year extension of a series of popular tax cuts that expired at the end of 2009, as well as several measures designed to create jobs.
The House and Senate have both passed bills that would extend about $26 billion in tax cuts that expired at the end of 2009, though the chambers have been unable to agree on how to finance them. The tax breaks include a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and development and a sales tax deduction that mainly helps people in the nine states without income taxes.
The banking industry argues the new tax would reduce lending and increase fees for consumers, just as the economy is starting to pick up.
"It's certainly easy to demagogue the financial services industry right now," Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, said in an interview.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committees, is planning several hearings to promote the tax. Rep. Sander Levin, D-Mich., chairman of the tax-writing house Ways and Means Committee, said he is working on the issue as well, though he wouldn't commit to endorsing the tax.
Schumer's support for the tax is key because many of the affected firms are based in New York. Baucus, however, said no decision had been made about including the bank tax in the financial regulations bill.
Sen. Chistopher Dodd, D-Conn., chairman of the Senate Banking Committee, said Tuesday he would rather not include the bank tax in the financial regulations bill.
In 2008, Congress and former President George W. Bush approved spending $700 billion to bail out financial institutions as the nation's financial system was on the brink of collapse. The Troubled Asset Relief Program was later expanded to include American automakers and homeowners, which would not be subject to the new bank tax.
The TARP program plans to spend a total of $497 billion, according to a report released Tuesday by the program's inspector general. To date, firms have repaid $186 billion, with billions more expected to be repaid in the future, according to the report.
Still, the program is projected to result in a loss to taxpayers of as much as $127 billion. The law that created TARP requires the president to submit a plan by 2013 to recoup that money.
"We need to think about how we are going to get that money back on behalf of American taxpayers," Baucus said.
Obama's proposed 0.15 percent tax on the liabilities of large financial institutions would apply only to those companies with assets of more than $50 billion - a group estimated at about 50. Administration officials estimate that 60 percent of the revenue would come from the 10 biggest ones.
A key liability for many banks is deposits, though they would be exempt from the tax. The other main liability is debt, which many banks used to finance risky investments, leading to the financial crisis. Obama has argued that a tax on non-deposit liabilities would be akin to a tax on risk, which would dissuade banks fom taking on too much risk.
Insurer American International Group, the largest beneficiary at nearly $70 billion, would have to pay the tax. But General Motors Co. and Chrysler Group LLC, whose $66 billion in government loans are not expected to be repaid fully, would not.
Representatives of the financial services industry say talk of a new tax is premature because it is not yet known how much money will be repaid without one.
"Taxpayers will make a profit on every bank TARP program," James Chessen, chief economist at the American Bankers Association, said in an interview. "It was the expansion to nonbanks that has created the losses that TARP has suffered."