Yesterday's financial-reform vote-counting drama culminated in a dramatic reopening of the conference committee at 5 p.m., with one purpose: To get rid of a tax on banks opposed by Senate Republicans. While the loss of Sen. Robert Byrd gained a lot of attention, the real problem in getting the bill over the line was wishy-washy GOPers, led by Sen. Scott Brown.
In their defense, the provision they opposed -- a $19 billion tax on the largest banks to cover the costs of regulatory reform -- was not in the Senate bill that Brown, Olympia Snow, Susan Collins, and Chuck Grassley previously voted for; it was a last-minute addition to the bill in conference. On the other hand, the replacement they asked for is also a tax on banks, just a roundabout one.
Rather than assess banks directly, the conference committee voted to end the much-derided TARP program early to cover the costs of the bill. (Democrats still intend to pursue a $90 billion tax on banks to recoup TARP expenses). The reopened conference also increased the FDIC's reserves, which is essentially a tax on the largest banks, since small banks were exempted from paying into the fund.
The Republicans on the committee, none of whom supported the bill, also voted against these changes, with the ranking Senate Republican calling the moves "budgetary smoke and mirrors." That's not wrong, but such is the price of getting their colleagues' votes on the measure. In practice, Republican opposition to taxes apparently means opposing clear taxes -- revenue-increasing measures can be used; they just have to be bank-shots, no pun intended.
The $19 billion tax that came out of the original conference had the advantage of being both direct and having little effect on consumers, according to the Cambridge Winter Center. Now, though, the TARP program -- whose remaining funds were being held in abeyance in case of another emergency -- will be no more, but its costs had not been paid for, so the changes represent unneeded deficit spending until the administration can push through its long-term bank tax.
At the end of the day, this will have little effect on the mechanics of the financial regulation bill, but it is a loss for good policy. Brown has demonstrated his ability to squeeze the legislative process for what he can get -- he's a Bay State Ben Nelson now -- but I wonder if his constituents will reward him for what he got: Loopholes for bank-operated hedge funds and the elimination of a bank tax. Assuming this satisfies Brown and his cohort of Republican swing votes, we can expect the bill to move forward again -- before July Fourth if Maria Cantwell chooses to vote against a filibuster, or after if Cantwell and a recalcitrant Russ Feingold force the Democrats to wait for Byrd's appointed replacement to arrive at the Capitol.
-- TIm Fernholz
