President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday.
The president has yet to settle on the details, and his senior economic advisers are weighing a number of options as they finish the budget proposal Mr. Obama will release next month.
Taxing big institutions to get back the money we lost saving the financial sector form their self-inflicted near-mortal wound sounds like a no-brainer, both as a political and a policy decision. The real problem is that the Senate and its 60-vote nonsense. As Dick Durbin said back in April, the banks “frankly own the place.”
Even with the strong populist outrage against the banks, they still have one of the best-funded lobbying operations in Washington. I simply can't imagine how a well-structured, serious tax on large financial institutions could survive the Senate's 60-vote buzzsaw. The tax will either get killed outright, or wind up completely crippled, stuffed with major loopholes and carve outs.
If Obama is serious about taxing the banks to pay down the deficit, he must insist on having the option to use reconciliation to pass the bank tax. Some have argued reconciliation would not work well for something like health care reform (a claim I strongly dispute), but reconciliation was basically designed specifically for something like a bank tax to pay down our federal debt. Raising taxes to pay down the debt was the whole idea behind reconciliation. The best way to make sure a deficit-reducing bank tax becomes law is to use a reconciliation measure, which can't be filibustered, and so only needs 50 votes in the Senate.
If the White House does not insist on having reconciliation instructions about a bank tax included in the budget, it will dramatically reduce the likelihood of a well-designed bank tax becoming law. Failure to push for using reconciliation on this issue would be a clear sign that the talk of a bank tax is pure political theater on the part of President Obama.
I'm not even sure given the power of the financial sector lobby that a well-designed bank tax could even get 50 votes in the Senate, but I'm extremely confident that one would never get 60 votes. If Obama tries to “fight” this battle, but leaves his biggest weapon, reconciliation, at home, one needs to doubt if even wants to really win. In roughly a month, when Obama unveils his budget, we will know if he plans to really try to get the taxpayers’ money back or just wants to pretend that he is trying. The proof will be if and how strongly he pushes for reconciliation instructions in the budget.