Hearing Of The Senate Committee On Finance - The President's Proposed Fee On Financial Institutions Regarding TARP: Part 1

Statement

Mr. Barofsky, I want to welcome you here today. You and I are both big believers in oversight,
accountability and transparency. Today we're discussing what the President calls a Financial
Crisis Responsibility Fee. However, the Assistant Secretary for Tax Policy told the dozens of
people in attendance at a briefing for Senate staff on the President's fiscal year 2011 budget
earlier this year that the President's proposed fee is actually an excise tax.
This is similar to the name game that the Administration and Congressional Majority played with
the excise taxes in their health care bill. Although they referred to the excise taxes as fees, the
legislative text clearly states that they are actually excise taxes. I will refer to it as the TARP tax,
and not the bank tax as some call it, because the proposal applies not only to banks, but also to
insurance companies, securities brokers, and thrifts, among others.
The statute that created TARP required the President to submit a plan by 2013 to recover any
losses under TARP so that the taxpayers are fully repaid for any TARP losses. However, three
years before it was required, the President proposed this excise tax--the TARP tax. One
problem that surfaced recently is that Congressional Democrats are already reportedly planning
ways to spend the money raised by the proposed TARP tax.
One proposal gaining steam among many on the other side lately is to add the TARP tax to the
financial regulatory reform bill. The Congressional Majority is so strapped for money to pay for
out of control spending that members are looking to the banks and other financial institutions for
money. This reminds me of the story about a reporter asking Willie Sutton, a notorious bank
robber, why he robbed banks. Sutton allegedly said, "because that's where the money is." I
cannot emphasize this next point enough, if Congress decides to pass a TARP tax, that money
should only go toward paying down the deficit. Otherwise, the TARP tax wouldn't even pay for
losses from TARP, it would just enable more taxing and spending by those who want to spend
more.
All economists state that corporate entities don't actually bear the burden of taxes -- people do. I
wanted to know which people would bear the burden of the proposed TARP tax. So I wrote a
letter asking the nonpartisan experts at the Congressional Budget Office and Joint Committee on
Taxation a series of questions.
The CBO responded to my letter by saying that customers would probably pay higher borrowing
rates and other charges, employees might bear some of the cost, and investors could bear some of
the cost. The CBO also said that the TARP tax "would also probably slightly decrease the
availability of credit for small businesses." In addition, the CBO said that, "for the most part, the
firms paying the fee would not be those that are directly responsible for loss realized by the
TARP."
One other item from the CBO letter worth noting is that the TARP tax would not apply to firms
in the automotive industry. That is really odd, since CBO's March 2010 TARP report states that
the automotive industry accounts for $34 billion of the program's estimated total cost of $109
billion. Chairman Baucus and I invited GM to testify before our Committee at one of the later
hearings, but GM representatives said they didn't want to testify. I believe GM's silence is
deafening.
On another TAR-related matter, I want to thank you for investigating the multi-million dollar
severance payments that Treasury is allowing TARP recipients like AIG to pay their departing
executives. As you know, I have communicated on several occasions with Treasury and the
TARP Special Master for Executive Compensation about this troubling issue, and I have run into
a stone wall. I am also pleased that you are going to investigate the possible conflicts of interest
on the part of key people at Treasury who worked on the TARP executive compensation
regulations.
Since those regulations helped executives walk away with huge severance payments, we need to
find out if they were drafted by people who used to represent the very executives affected by the
regulations. Treasury claims that all the proper recusals were made, but it has provided none of
the documentation necessary to verify that claim. I trust that you will be able to get to the
bottom of these important questions and report back to the Committee in the near future.

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