(Taken from Steptoe & Johnson LLP Daily Tax Update)
Last week, President Obama announced a proposal to levy a new fee on financial services institutions (including insured depository institutions, , thrift holding companies, insurance or other companies that owned insured , or securities broker-dealers) with over $50 billion in assets. Both domestic firms and U.S. subsidiaries of foreign-based firms would be subject to the fee. The fee will be equal to approximately .15 percent of “covered liabilities," which are determined by subtracting Tier 1 Capital and FDIC-assessed deposits and insurance reserves from assets.
- The fee is designed to recover, over a ten-year period, the current estimated (TARP) losses of $117 billion. The White House statement said, “The fee will be in place at least 10 years, but even longer if needed to pay back every penny of TARP. This will not be a cost borne by community banks or small firms; only the largest firms with more than $50 billion in assets will be affected. In fact, 60% of the revenue will come from the 10 largest financial firms.” Covered liabilities would be reported by regulators.
- It is unclear whether the "fee" would be tax-deductible. The "fee" might more accurately be described as a tax--the fee would be collected by the IRS and revenues would be contributed to the general fund to reduce the deficit.
- The President said, “My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people – who have not been made whole, and who continue to face real hardship in this recession. That’s why I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street.”
- Finance Committee Chairman Max Baucus issued the following statement, “We look forward to reviewing the details of this proposal and each of the President’s budget proposals. Our focus in economic recovery must be three-fold: spur job growth at home, while maintaining and improving U.S. competitiveness world-wide; bring our deficits back to a sustainable level, including by passing meaningful health care reform; and recoup taxpayer dollars spent in support of the financial system. The American taxpayer comes first, and they need to know where their tax dollars are going. Excessive pay and excessive risk among the same firms that came to Congress a year ago simply will not stand. I applaud the President for his initiative in working to ensure taxpayers see a return on their investment. I remain committed to working with the President, and my colleagues across the aisle, to make sure this proposal is right for America and for American taxpayers.”
- House Financial Services Committee Chairman (D-MA) stated: “President Obama’s action today complies fully with the taxpayer protection language of the original TARP bill. His decision to do this before 2013 is a good one because there is no need to wait. In fact, the has been both more successful and less expensive than many critics feared and that allows us to move quickly now to repay the American taxpayer. I strongly support this proposal, and I am confident that the Committee on Ways and Means will be acting on it soon.”