Tax Analysts Blog

Comparing the Camp and Obama Bank Taxes

Posted on Mar 3, 2014

By now, almost everyone interested in tax policy knows about Dave Camp’s tax reform discussion draft. Camp’s plan is the most detailed tax reform proposal in some time (arguably since 1986, depending on how seriously you take the efforts of President George W. Bush’s blue ribbon commission). There are a ton of items in the draft to dissect, but one of the more controversial and interesting is the fee on large financial institutions – otherwise known as the bank tax.

Camp’s bank tax was being attacked even before it was unveiled. The financial industry got wind of the Ways and Means chair’s intention just before the plan was released and began to mobilize against it. Given how much ire has been directed at this aspect of Camp’s proposal, you’d think it would be one of his key revenue raisers or a critical component. But it isn’t. The bank tax will raise about $86 billion over 10 years. By contrast, eliminating the state and local tax deduction, as Camp is calling for, would raise $954 billion over 10 years. (The repeal of the state and local deduction is the main reason that Sen. Charles Schumer called the plan dead on arrival.)

So why is the bank tax generating so much discussion? It wasn’t all that unexpected that Camp might attack the financial sector (especially after the industry turned on Republicans during the government shutdown), but the chair’s party affiliation still makes it somewhat remarkable that he has taken up this idea, and structured it in the way that he did.

There are many ways to tax the financial sector, but Camp picked a very familiar one. He would levy a tax of 0.035 percent on assets over $500 billion. That idea is very similar to President Obama’s January 2010 proposal. Obama would have taxed liabilities of banks with assets over $50 billion. The rate was 0.15 percent, and the tax would have raised about $90 billion.

Obama pushed his bank tax when the popularity of banks and the financial sector was at its nadir. At his press conference announcing the proposal, he pledged to make sure that banks paid back every bit of the money loaned to them under TARP. "We want our money back, and we're going to get it,” the president said. At the time, Democrats were solidly in control of both chambers of Congress. The tax, however, went nowhere, and not necessarily because of GOP opposition. Powerful Senate Democrats, such as Christopher Dodd, had a lot to do with the plan never getting much attention on Capitol Hill. In February 2012, however, Obama doubled the bank tax in his budget proposal, leading to speculation that he intended to make it a centerpiece of his presidential campaign.

And now the tax, in a different form, is back. There are solid reasons to tax the financial sector. Economists point out that the industry receives an implicit subsidy because of the “too big to fail” guarantee. The financial sector is also prone to excessive leverage and has enjoyed remarkable profitability in the last few years. Camp’s plan, however, isn’t tailored quite as well as Obama’s to target those problems. Obama wanted to tax liabilities, while Camp is simply taxing assets. Further, the tax isn’t really big enough to totally recapture the too-big-to-fail subsidy. Camp can’t argue that it is designed to force repayment of money loaned to financial industries during the meltdown because almost all of that has been repaid. Things are very different in 2014 than they were in 2010.

So the only argument left for a bank levy is that banks aren’t paying enough in taxes. They are too profitable, and they should share some of those profits with a federal government in need of money (particularly if Camp’s rate cuts are enacted along with the rest of his tax reform proposals). But that isn’t a very Republican line of reasoning. Is Camp really implying that the richest and most profitable among us should be paying more?

Including the bank tax in his plan is one of Camp’s most intriguing decisions, if only because the gain for him isn’t obvious, even after a closer look. The tax doesn’t raise much money. It is very similar to an Obama proposal that congressional Democrats didn’t really like, meaning it doesn’t buy the chair any bipartisan support. And it comes about four years too late to take advantage of widespread public anger at financial institutions. All Camp seems to have accomplished is legitimizing a revenue raiser for future use by the progressive caucus and undermining his own party’s opposition to this kind of tax increase.

Read Comments (1)

chris berginMar 3, 2014

Another fine post, Jeremy. I think that a Republican Chair of the House Ways
and Means Committee has laid the groundwork for a more progressive income tax.
To those who say this bill is going nowhere, I would suggest a point made by
others here: Camp has put a whole lot of sacred cows into play. I would further
suggest that there are good sacred cows and bad sacred cows -- and not just
from a special interest point of view, but from a good tax policy point of

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