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Wednesday, January 13, 2010

TAXING THE BANKS

The federal government is beginning to think that they are not going to recover about $120 billion in TARP money that was used to bail-out American car companies and AIG. What's the surprise? GM never had any hope of repayment. So now, what to do? To get about $100 billion, President Obama is considering taxing what he believes are the windfall profits of the biggest banks in the U.S.
These are the same banks that themselves got a TARP bail-out, and have repaid the money with interest. Wasn't that the deal?
Now that the banks are in "bonus season", everyone is watching to see how huge the banks' bonus pay-outs will be. No doubt, they will be large. And a lot of people will be angry about this, President Obama among them. His rationale for taxing the banks will be based on their bonus payments, and his belief that the banks' accepting TARP money in the first place creates a social obligation on their part to pay the debts of other companies that cannot pay their own.
So what will be the consequence for large banks which will be taxed? Well, for one thing, they will have less money to lend. (I know they are not lending anyway. That's not the point. We've been over this before.) Secondly, President Obama's apparent hostility toward profit-makers will be demonstrated once again. This will create the suspicion among the business community that they will also be subject to new taxation in the future. This will contribute to the "uncertainty" that most people believe is causing businesses to avoid new hiring. And that defeats any jobs program you can name.

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