President Obama’s just released 2016 fiscal year federal budget proposal is already ruffling Republican feathers in Washington, D.C., and it’s no wonder as it includes taxes meant to stimulate controversy. In particular, the Obama administration is taking aim at big Wall Street banks and other securities firms.
“The President’s proposal would make it more costly for the largest financial firms to finance their activities by borrowing heavily,” according to an official statement from the White House. “Specifically, the President’s proposal would impose a 7 basis point fee on the liabilities of large U.S. financial firms: the roughly 100 firms in the nation with assets over $50 billion.”
The President’s proposed tax is intended to cause the largest financial firms “to make decisions more consistent with the economy-wide effects of their actions, which would in turn help reduce the probability of major defaults that can have widespread economic costs,” according to the $4 trillion proposed spending package. “This approach is broadly consistent with a proposal from former Ways and Means Chairman Camp’s tax reform plan that would have imposed an excise tax on large financial firms.”
The tax would impact insurance companies, exchanges, asset managers, broker-dealers, specialty finance corporations, financial affiliates of nonfinancial corporations, and U.S. subsidiaries of international firms, according to a report in The Wall Street Journal. If enacted, the proposed tax raise would generate approximately $112 billion over a decade and the extra tax revenue, in theory, would ease the tax burden of middle-income workers.
Most Washington observers say that this tax, among others, will not get traction in a G.O.P.-controlled House and Senate. It’s difficult to fathom why the Obama administration would float a proposed tax that will rile Wall Street firms and Republicans. The president must be looking to the future when he makes these tax proposals because they are likely to be fighting words for another campaign.
In another move that makes more sense, the White House is proposing to provide “significant bumps” for the regulators SEC and CFTC, which for many budget cycles have been trying to boost their tight budgets. The Wall Street Journal is reporting that the SEC could have its funding levels rise by about $222 million to $1.72 billion under the Obama administration’s 2016 budget plan. The CFTC, according to the report, could receive a $72 million boost to $322 million. If approved, the funding would be for the fiscal year starting on Oct. 1.
Fights over funding are ahead as Republicans have resisted spending more on the regulatory agencies, which have been petitioning Congress to give them the budgets they need to enforce the unending flow of new regulations.
While it’s unlikely the Republicans and the White House will agree to tax and spend more, I’m wondering if it might be more palatable to Congress if the proceeds from the aforementioned proposed tax (or another one) would flow directly to the regulators, which legitimately need more funding.
Need a Reprint?
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