During Wednesday night’s State of the Union Address, President Obama again mentioned a proposal that would impose a tax on banks that have yet to repay their TARP funds. I find the very idea of this proposal outrageous and feel that it is a vast abuse of government power to impose it. Let’s see what President Obama said on Wednesday night regarding the the banks that have yet to pay back their TARP funds:
I have proposed a fee on the biggest banks. I know Wall Street isn’t keen on this idea, but if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.
The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understanding by the people that vote for it (such as the current Healthcare bill). If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement. They didn’t. Why do our politicians keep voting for bills that they do not understand fully?
First off, a fee is just a more politically acceptable term for a tax. What he is doing is proposing a tax on the banks that have not paid back their TARP funds. The problem is that regardless of what these banks are doing with the money, they have no contractual obligation to repay the funds yet. The deadline for setting up a TARP repayment system is 2013.
When TARP was passed in 2008, they setup rules for how things would be handled. Now, President Obama wants to change those rules on the banks mid-stream.
Imagine if your brother-in-law loans you $50,000 to start a business, and you sign a written agreement stating that you will pay the amount back in a lump sum in 5 years. A year and a half goes by, and your business is chugging along nicely. You decide to reward yourself with a new flat screen TV for the living room. Now your brother-in-law comes over and has a hissy-fit because you are spending money on a new television, but you have yet to repay the $50,000 to him. To get back at you, he decides he is just going to help himself to the better part of your DVD collection. I can see how he may want his money now rather than later, but that was not your agreement. If your brother-in-law wants his money sooner, he needs to work with you to amend the agreement, not just start taking things.
In his post, Is the Bank Tax Unconstitutional, Peter Pappas of the Tax Lawyer’s Blog discussed the constitutionality of the Bank Tax and whether the banks have a legal or a moral obligation to repay their TARP funds early. I can see how someone may argue that it isn’t right for them to take bonuses when they have yet to repay their debts. But do the people making those arguments think that it is morally acceptable to go out and eat an extravagant dinner when they have yet to repay their credit cards debts or home mortgage. The fact is that the banks had until 2013 to setup a TARP repayment system. The banks have NOT broken that agreement.
The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understand by the legislators that vote for it (such as the current healthcare bill). If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement. They did not. Why do our politicians keep voting for bills that they do not understand fully?