Stimulus package
Sam Howe, Senior
Issue date: 2/4/10 Section: Opinion
The financial crisis responsibility fee is a recently proposed bill by President Barack Obama that is targeting the financial sector. The purpose of this bill is to cover the costs of the "bank bailouts" so they do not ultimately increase the U.S. federal deficit.
The costs that we have incurred from Troubled Assets Relief Program (TARP), a fund of $700 billion to stabilize the financial industry, are $117 billion and, according to the Emergency Economic Stabilization Act (EESA), the president must have a plan enacted by 2013 to recover these costs, according to the Treasury Department. It will apply to all financial institutions with at least $50 million in assets including companies that did not collect TARP money. The Treasury Department envisions that the 10 largest companies would likely be absorbing about 60 percent of the costs. The details are written so that these financial institutions would be taxed 15 percent on there covered liabilities excluding FDIC deposits.
In my opinion, it is probably too early to enact a bill that is designated in recovering our money from the financial sector. Any adjustments made by the government, particularly when dealing with the recovery of our economy, should be avoided. On the contrary, I like the concern our country has shown by immediately taking strides to deal with the deficit. If this bill passes it is likely that these big institutions will be forced to adjust the way in which they have done business. This could mean more job loss, industry changes (passing it to the consumer) and, overall, more uncertainty.
While I do think that this is an important issue and discussions of recovering our money from the financial industry are necessary, I would recommend using the time granted by EESA to avoid setbacks in the world's economic recovery. Taxing banks, the institutions who loan money that allows major economic growth, will constrict growth.
Texas Republican Jeb Hensarling said, "To think that banks will loan more money if you tax them more is fundamental economic ignorance."
When asked about the firms who have already paid back their TARP money Democrat Barney Frank (Mass.) said, "Every one of those institutions was engaged in the kind of activity that led to the problem."
The timing of the bill amidst all the anger at the financial industry will certainly play a factor.
I have more fear now about our country's financial situation than ever before. David Walker, the former comptroller of the United States and CEO of the Government Accountability Office from 1998 until 2008, was in a NPR interview about our deficit. This organisation's goal is to audit our government's programs and spending; financial as well as performance audits are performed. In the interview David stresses that his concern is not for the deficit which we have today, but the structural deficit which will occur. Meaning under budget in even with a good economy and not fighting a war. By running long term deficit we will lose confidence from our foreign investors in turn raising the cost of capital. He goes on to say that if things continue in their current patterns that within 12 years the single most expensive thing on our budget will be paying interest on our national debt.
It is awfully hard to pay for social programs and national security if all of our tax dollars are tied to interest payments.
Walker says, "There's absolutely no question that taxes are going to have to go up. When you look at the promises that have been made for Medicare, for example, $38 trillion underfunded, Social Security $7.7 trillion underfunded, plus military and civilian pensions and retiree health care, to make the numbers work, you have to restructure those programs, constrain spending, and raise revenues."
It is important to remember that our generation is the one who will be seeing this tax increase, not our parents.
Walker also answered a question about the overall process of our health care system.
"Well, the current health care reform bill is really not a health care reform bill. It's a health care coverage expansion bill, and the only reason that people are talking about cost is because the president rightfully said he wanted to make sure that it was deficit neutral. The problem is that this country has $38 trillion of unfunded promises for Medicare already. So our health care house is already mortgaged for more than its worth, and all we're doing is adding a new wing onto it. So it doesn't give me great confidence. And my question is: when are we going to start dealing with the real problems with health care costs that threaten to bankrupt the country and to make sure that we can deliver on the promises that make?"
Sam Howe
Senior
The costs that we have incurred from Troubled Assets Relief Program (TARP), a fund of $700 billion to stabilize the financial industry, are $117 billion and, according to the Emergency Economic Stabilization Act (EESA), the president must have a plan enacted by 2013 to recover these costs, according to the Treasury Department. It will apply to all financial institutions with at least $50 million in assets including companies that did not collect TARP money. The Treasury Department envisions that the 10 largest companies would likely be absorbing about 60 percent of the costs. The details are written so that these financial institutions would be taxed 15 percent on there covered liabilities excluding FDIC deposits.
In my opinion, it is probably too early to enact a bill that is designated in recovering our money from the financial sector. Any adjustments made by the government, particularly when dealing with the recovery of our economy, should be avoided. On the contrary, I like the concern our country has shown by immediately taking strides to deal with the deficit. If this bill passes it is likely that these big institutions will be forced to adjust the way in which they have done business. This could mean more job loss, industry changes (passing it to the consumer) and, overall, more uncertainty.
While I do think that this is an important issue and discussions of recovering our money from the financial industry are necessary, I would recommend using the time granted by EESA to avoid setbacks in the world's economic recovery. Taxing banks, the institutions who loan money that allows major economic growth, will constrict growth.
Texas Republican Jeb Hensarling said, "To think that banks will loan more money if you tax them more is fundamental economic ignorance."
When asked about the firms who have already paid back their TARP money Democrat Barney Frank (Mass.) said, "Every one of those institutions was engaged in the kind of activity that led to the problem."
The timing of the bill amidst all the anger at the financial industry will certainly play a factor.
I have more fear now about our country's financial situation than ever before. David Walker, the former comptroller of the United States and CEO of the Government Accountability Office from 1998 until 2008, was in a NPR interview about our deficit. This organisation's goal is to audit our government's programs and spending; financial as well as performance audits are performed. In the interview David stresses that his concern is not for the deficit which we have today, but the structural deficit which will occur. Meaning under budget in even with a good economy and not fighting a war. By running long term deficit we will lose confidence from our foreign investors in turn raising the cost of capital. He goes on to say that if things continue in their current patterns that within 12 years the single most expensive thing on our budget will be paying interest on our national debt.
It is awfully hard to pay for social programs and national security if all of our tax dollars are tied to interest payments.
Walker says, "There's absolutely no question that taxes are going to have to go up. When you look at the promises that have been made for Medicare, for example, $38 trillion underfunded, Social Security $7.7 trillion underfunded, plus military and civilian pensions and retiree health care, to make the numbers work, you have to restructure those programs, constrain spending, and raise revenues."
It is important to remember that our generation is the one who will be seeing this tax increase, not our parents.
Walker also answered a question about the overall process of our health care system.
"Well, the current health care reform bill is really not a health care reform bill. It's a health care coverage expansion bill, and the only reason that people are talking about cost is because the president rightfully said he wanted to make sure that it was deficit neutral. The problem is that this country has $38 trillion of unfunded promises for Medicare already. So our health care house is already mortgaged for more than its worth, and all we're doing is adding a new wing onto it. So it doesn't give me great confidence. And my question is: when are we going to start dealing with the real problems with health care costs that threaten to bankrupt the country and to make sure that we can deliver on the promises that make?"
Sam Howe
Senior
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