Goldman Sachs Group Inc (NYSE:GS) has canceled a Republican fundraiser it had been planning in protest of a recent proposal to raise taxes on banks with more than $500 billion in assets, reports Stephanie Armour and Ryan Tracy for The Wall Street Journal. Representative Dave Camp (R-MI), chairman of the House Ways and Means Committee wants to tax 0.035% of consolidated assets for banks with more than $500 billion, as he first mentioned a month ago. The plan is meant to raise $86 billion over ten years from roughly ten of the country’s largest financial institutions.
Tax meant to offset supposed too-big-to-fail subsidy: Goldman Sachs
Camp’s argument is that large banks are still seen as too big to fail, and markets treat them as if they have an implicit backstop from the Federal government, resulting in lower borrowing costs than regional and local banks are able to access. He says that the tax simply eliminates the unfair interest rate subsidy these banks enjoy and creates a level playing field. Despite their general aversion to raising taxes, conservatives have also criticized the system that allows banks to become so big that they endanger taxpayer dollars during a crisis. Banks disagree with this assessment, saying that the new tax is simply a way to increase revenue from a group that mostly doesn’t have the public’s sympathy.
Even if the proposal is unlikely to be passed right now (pushing tax reform through a deadlocked Congress in a campaign year is ambitious), the financial sector is worried because the proposal started out on the other side of the aisle. President Barack Obama has repeatedly pushed for a similar tax in his own budget proposals.
Current proposal unlikely to pass, but the idea could resurface: Goldman Sachs
Saying that the measure has bipartisan support overstates its appeal. As you would expect, many Republicans are opposed to new taxes. Throw in that the tax targets a sector that donates more to conservative than liberal candidates in recent years (though it has always contributed to both sides), and Camp is fighting an uphill battle inside his party.
The next time tax reform really is under discussion, the fact that a bank tax popular with Democrats has a measure of support among Republicans makes it more likely that the proposal could be used as a bargaining chip by Republicans. Investment banks like Goldman Sachs Group Inc (NYSE:GS) want to beat the idea now, long before it has a chance to come up during a negotiation between the two parties.