The Obama Administration’s push for a “bailout tax” on banks ran into some surprising resistance over the weekend, and not from Republicans. At the G-20 confab in Washington, Treasury Secretary Timothy Geithner said the U.S. remains committed to a balance-sheet tax on banks and assumes that other countries will follow America’s lead. But Canada, Australia, Japan and Brazil, among other countries, beg to differ.
Canadian Finance Minister Jim Flaherty made the sensible case over the weekend that sucking more money out of the banking system to pay for domestic spending wasn’t the best way to foster financial stability. Canada and these other governments did not for the most part promote the housing mania and then break their national treasuries to bail out their banks. They rightly see any move to impose additional levies on their financial companies as punitive and unjustified.
By contrast, France, Germany and the U.K. are on board with the U.S. proposal, which is not surprising given how desperate the four are for revenue. Over the weekend, an unnamed French official told this newspaper that only a tax could effectively “discourage excessive risk-taking and prevent systemic risk.”
The IMF also seems to think it makes little difference whether the revenue from these taxes goes into a fund earmarked for bailout costs or into the government treasury, as either would pay down national debt and increase a country’s capacity to pay for future bailouts. Left unmentioned is the near-certainty that the extra revenue would simply be spent, leaving no one but our spenders-in-chief better off when the next crisis comes. For a precedent, consider the Social Security “lockbox.”