WASHINGTON—President Obama plans to call on Thursday for taxing about 50 big banks and major financial institutions for at least the next decade to recoup all taxpayer losses from the bailout of Wall Street.
The tax on banks, insurance companies and brokerages with more than $50 billion in assets would start after June 30 and seek to collect $90 billion over 10 years, according to a senior administration official who briefed reporters late Wednesday.
But the levy but would remain in force longer if all losses to the bailout fund, the Troubled Asset Relief Program, are not recovered after a decade. Administration officials now say that the losses from the $700 billion loan program created in October 2008 are likely to be about $117 billion, which is about a third of the losses that the government projected last summer — an improved forecast that reflects the strength of the recovery on Wall Street, even as Main Street struggles.
“The goal of this proposal is to ensure that those major financial institutions who were the most significant contributors to the financial crisis, and who have been the most significant beneficiaries of the extraordinary public policy efforts, take responsibility to ensure that all of the costs of TARP are not added to the deficit or passed on to next generations through an increase in our national debt,” said the official, who spoke on condition of anonymity in advance of the president’s announcement.
The administration is calling the tax a “financial crisis responsibility fee,” a name that suggests its political purpose as well as its fiscal implications.
The Obama team has been buffeted by populist anger from the political left and right, with the public little inclined to give it credit for helping rescue the financial system amid reports that bank executives and traders are reaping big bonus as small businesses are starved for loans and millions remain out of work.
But since word of the tax began circulating earlier in the week, the big banks have been objecting that taxpayers actually made money on the bailout loans. Many, including Goldman Sachs and JPMorgan Chase, have repaid their federal funds with interest and the government has also made money in selling the banks’ warrants that it held as collateral.
Mr. Obama will propose the bank tax, with more details, as part of the budget he will send to Congress in early February. It would require passage by lawmakers. With lawmakers also facing anti-Wall Street populist sentiment in this election year, and under pressure along with the president to reduce deficits that are the highest since World War II, the chances of some sort of tax becoming law are considered fairly good.
While the banks maintain that taxpayers made money from the bailout, losses are expected from money paid to rescue Chrysler and General Motors and the insurance giant American International Group, and from a program to help troubled homeowners avert foreclosures. The payouts for auto companies and housing programs represented expansions of the program, which was created to rescue the financial system.
The A.I.G. bailout, however, did benefit big banks because some of the same companies that received government money also received full payment for their complicated financial trades with the insurance company.
The administration official said that the automakers and A.I.G., as well as the housing finance giants Fannie Mae and Freddie Mac, both of which are under government conservatorships, are not in a financial position to be taxed to recover taxpayers’ losses.
The official added, in one of several populist broadsides against the big banks, that the financial firms that would be subject to the new tax “were significantly responsible for an enormous degree of the reckless risk-taking” that led to the financial system’s near-meltdown in the fall of 2008.
“It is in many ways offensive,” the official said, “for those at our major financial institutions to suggest that they can today afford excessive, often outlandish bonuses for their top executives but cannot afford to make whole the taxpayers who put forward public policies that they have benefited from an extraordinary measure.”
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.
The administration’s objective in excluding a bank’s equity and insured deposits is to tax just the holdings that relate to risk-taking.
Under the law that created the bailout fund late in the Bush administration, the president was required to seek recovery of any losses by 2013. The administration official said that Mr. Obama and the Treasury secretary, Timothy F. Geithner, “feel strongly that there was no reason to wait.”
Eric Dash contributed reporting from New York.
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