January 14, 2010

Good PR move, I guess. Obama allowed public anger to build and now it looks like he only slammed the bankers because he had to. Which is, you know, probably true.

I prefer Yves' idea: That this should be positioned as a windfall profits tax. They didn't earn these outrageous profits; those profits wouldn't exist with the federal government infusing cash into their dying companies.

President Obama plans Thursday to propose a sharp increase in the taxes paid by the nation's largest financial institutions designed to raise $90 billion over the next decade while constraining the industry's ability to take large risks and reap outsize rewards, a senior administration official said.

The tax proposal, which would require congressional approval, is meant to make a splash, demonstrating to the public that the administration is now focused on reforming the financial industry after more than a year of bailout efforts. The official, who spoke with reporters before the president's announcement on condition of anonymity, said that large firms were reaping renewed profit from a rescue intended to help the broader economy and that the public deserved a larger share of the money.

The nation's largest banks are expected to report large annual profits over the next week, along with plans to set aside billions of dollars for employee bonuses.

[...] Industry executives are warning that hitting banks will hurt the broader economy because firms would seek to impose the cost of any tax on customers.

"Using tax policy to punish people is a bad idea," Jamie Dimon, the chief executive of J.P. Morgan Chase, told reporters Wednesday after his testimony before the Financial Crisis Inquiry Commission. "All businesses tend to pass their costs on to customers."

[...] Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he supports the administration's plan, but he also is holding hearings next week to consider additional ways of curbing compensation, including reversing a cut in the tax rate that applies to the largest bonuses.

Frank said he was unmoved by the argument that the higher taxes might reduce the flow of money to the broader economy. He said some banking activities appeared to have only one purpose: "to simply make money for the people who participate."

He also played down concerns that talent would leave the industry.

"I don't know where people would go for comparable salaries," Frank said. "I guess perhaps they could star in major motion pictures."

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