President Obama's bank tax may produce some good theater, as the industry's lobbyists warn of an impending Armageddon, but it will do little to affect the fundamentals of the financial sector. The administration was projecting that the tax would raise roughly $9 billion annually over the next decade. By comparison, the annual profits of the banks in question run close to $90 billion a year. The bonuses at these institutions are likely to be in the same neighborhood. This means that the tax will be equal to roughly 5 percent of the combined profits and bonuses at the large banks. From the standpoint of those wishing to make the industry pay for some of the damage that it has done, this is better than nothing, but it certainly is not going to lead to any fundamental changes in the way business is conducted on Wall Street. This context had been almost completely absent from the reporting on the proposed tax. It would also be helpful if reporters tried to evaluate the assertion of the industry lobbyists that this (or other) taxes will simply be passed on to customers. Reporters should have the time and ability to do make such an evaluation, rather than just pass along a he said/she said to readers, almost none of whom will have the time or expertise to make this assessment. In the case of this tax, since it only applies to the largest banks, it would not be possible for the banks to pass it along to consumers, since they would lose market share to smaller banks who don't pay the tax. (If they could charge their customers more, why aren't they doing it already?) The alternative scenario, in which the large banks are able to pass on the tax, would suggest a degree of concentration in the industry which should require anti-trust action.
--Dean Baker
