- John Barrdear - http://john.barrdear.com -

The US bank tax

Via Felix Salmon [1], I see the basic idea for the US bank tax has emerged [2]:

The official declined to name the firms that would be subject to the tax aside from A.I.G. But the 50-odd firms, which include 10 to 15 American subsidiaries of foreign institutions, would include Goldman Sachs, JPMorgan Chase, General Electric’s GE Capital unit, HSBC, Deutsche Bank, Morgan Stanley, Citigroup and Bank of America.

The tax, which would be collected by the Internal Revenue Service, would amount to about $1.5 million for every $1 billion in bank assets subject to the fee.

According to the official, the taxable assets would exclude what is known as a bank’s tier one capital — its core finances, which include common and preferred stock, disclosed reserves and retained earnings. The tax also would not apply to a bank’s insured deposits from savers, for which banks already pay a fee to the Federal Deposit Insurance Corporation.

i.e. 0.15%.  It’s certainly simple and that counts for a lot.  It’s difficult to argue against something like this.

I would still have liked to see it as a convex function so that, for example, it might be 0.1% for the first 50 billion of qualifying assets, 0.2% for the next 50 billion and 0.3% thereafter.

Better yet, pick a size that represents too big to fail (yes, it would be somewhat arbitrary), then set it at 0% below, and increasing convexly above, that limit.

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