President Obama's newly proposed bank tax - or, in his parlance, "a financial crisis responsibility fee" that would target the ravenous buccaneers who plundered the economy and nearly plunged us into a second Great Depression - is a shrewd blend of good policy and good politics. But whether Congress will actually enact such a levy...well, that's another story entirely, for reasons that are all too familiar.
On the policy front, Obama's levy would be a boon to beleaguered taxpayers, who put up the money to bail out the most reckless financial firms. Under the law that mandated the rescue operation, the feds are required to recoup that bailout money for the taxpayers, post-rescue. At the moment, that tab is roughly $117 billion. Obama wants to slap his tax on 50 of the largest financial firms, and recoup that money over the next decade.
Obama's timing is hardly accidental. Starting today, the largest firms are expected to report their annual profits, as well as their plans to pay out fat employee bonuses - a veritable celebration of the recovery that was financed by the taxpayers in the first place. (Capitalists actually adore "socialism," as long as they're the ones who are feeding at the trough.) As the president put it yesterday, "We want our money back, and we're going to get it. If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to pay back every cent they received from taxpayers."
And on the political front, Obama's tax can potentially erase the perception (widely held by his liberal base and many swing-voting independents) that he's too cozy with Wall Street. With the '10 congressional elections on the horizon, he needs to harness the populist fury at Wall Street, lest he and his party be consumed by it. Yesterday's sound bite - "we want our money back" - is intended to signal that he's on the side of the little guy.
And the tax is also intended to expose the Republicans as Wall Street toadies who are on the side of the heavy hitters. For many months, GOP lawmakers and messengers have been rhetorically fulminating about Wall Street abuses and about the fleecing of the taxpayer. But now that Obama has pitched a plan that would actually recoup $117 billion for the taxpayers, guess what...and brace yourself, because I know this will come as a shock...the Republicans are against it.
Their arguments are basically what you would expect to hear. A Texas congressman charged yesterday, "To think that banks will loan more money if you tax them more is fundamental economic ignorance. It is small wonder the nation remains mired in double-digit unemployment under such policies." And the Republican line was echoed, predictably enough, by the chief executive of J P. Morgan Chase, who said, "Using tax policy to punish people is a bad idea," and who warned that "all businesses tend to pass their costs on to their customers."
So let us review: Taking full advantage of government deregulation, the top financial firms wreaked havoc by turning the economy into an unsustainable Ponzi scheme - yet now that they've been rescued by the American taxpayers (whom they screwed in the first place), they want to keep that taxpayer money, on the grounds that it would be "a bad idea" for the government to take it back. And the Republicans are right in step with that thinking.
The Democrats therefore have a rhetorical opportunity. In these early days of congressional election campaigning, they can tag the GOP as the party that stands with Wall Street against the taxpayers (as in, "the Republicans don't want you to get your money back"). Indeed, if this tax proposal does come up for a vote on Capitol Hill, the Senate Republicans will probably stand in united opposition and threaten yet another filibuster. That's legislative life as we know it.
Naturally, the financial industry is also girding to fight such a fee - as Obama acknowledged yesterday, when he directed these harsh words at Wall Street: "Instead of sending a phalanx if lobbyists to fight this proposal, or employing an army of lawyers and accountants to evade the fee, I suggest you might want to simply meet your responsibilities."
Care to lay odds on that happening? Far more likely, the financial industry will marshal their Republican enablers and pick off a few conservative Democrats to stymie the fee in the Senate.
Obama's move yesterday was good politics, but, once again, yet again, his tongue-lashing rhetoric may well collide with the realities of power. Because the titans of Wall Street have long demonstrated that, when it comes to playing the inside game, they have no shame.