WASHINGTON — Lawmakers split Tuesday on whether the regulatory reform bill should include a "financial crisis responsibility fee" charged on the largest institutions.
While lawmakers from both parties sound open to the idea, they lack a consensus on timing, with some worried about charging banks prematurely before true losses from the Troubled Asset Relief Program are known as well as which companies should be taxed.
"We're about three years early in raising this question because we don't really know," Sen. Charles Grassley, R-Iowa, told reporters outside a Senate Finance Committee hearing on the subject.
New York Democrat Charles Schumer said Congress should not wait to pass a bill suggested by the Obama administration that would levy a 15-basis-point fee on the liabilities of firms with more than $50 billion of assets. "We certainly can and should work to prevent any more taxpayer bailouts, but we also need to close the book on the last one and make sure that taxpayers get back every dime they paid to rescue the economy," Schumer said. "There are sure to be legitimate questions about the details of the plan … but overall I think the administration's proposal is a common-sense way to make sure that taxpayer money is repaid and I believe it should be included in the financial reform legislation soon to be debated on the Senate floor. I agree with the administration in this regard."
But the author of the regulatory reform bill, Senate Banking Committee Chairman Chris Dodd, had a different view late Monday, according to published reports, telling reporters that while the tax proposal has "merit," he was "resistant to adding it to this bill."
At issue is how Congress satisfies a mandate in the 2008 Tarp legislation to recoup shortfalls from the bailout program. Although the White House's tax proposal lost traction after it was unveiled in January, it has picked up momentum as the Senate nears a vote on the overhaul legislation.
But the exact structure of a fee is unclear, including whether it would apply just to banks that received Tarp funds or others like automakers, and how the tax revenue would be used. Sen. Max Baucus, D-Mont., the Finance Committee chairman, said that the panel must consider several factors before acting. More hearings on the issue are expected.
"We want to understand the best approach to designing a fee, to whom it should apply and how it might affect the economy and the markets," he said. "We need to learn whether banks will pass it on to consumers, and how it might affect lending to small businesses. And we need to take into account what European countries might do as they consider similar levies."
Afterward, he stayed clear of a position on whether the committee could come up with provisions on the tax in time to insert in the broader reform bill. "It's a question to be determined," Baucus said. "It just takes time to talk to individual senators, see where they are and what they've agreed to and not agreed to. Don't forget, sometimes we have a 60-vote requirement, which is also relevant."
But Schumer clearly sees sufficient support, telling Baucus at the hearing, "Mr. Chairman, I want to work with you and all of our colleagues on this committee to get recovery legislation ready in time to be included in the financial reform legislation that will soon be considered on the floor."
Grassley, the committee's ranking Republican, said the multiple projections of losses from the program — including some estimates that Tarp may ultimately turn a profit — make it difficult to impose a fee without overcharging institutions.
Questioning the hearing's one witness, Neil Barofsky, the special inspector general for Tarp, Grassley said, "If Treasury says eventually there may not be losses, does this excise tax make sense?"
Barofsky responded by saying that any estimate to date of Tarp's losses is just a projection.
"Certainly, with more time there will be more certainty as to the extent of the losses," he said.
While several banks have already paid back their Tarp funds, Barofsky said it is not yet known how much the program will recoup from aid given to American International Group, automakers and a foreclosure-prevention program. "It will take several years for us to get a real sense of what those losses may be," he said.