Tax on banks should be collected over long time period

There's a particularly juicy rumor gaining steam that the Obama Administration plans to tax banks to recoup taxpayer-funded bailouts of banks and more.

"I think it's a perfectly reasonable idea," Douglas Elliott, a fellow at the Brookings Institution, a think tank, told WalletPop. "Clearly there is a great deal of public anger about how strongly the larger banks have rebounded."

As average Americans see how their tax dollars contributed to banks making outsized profits even as credit remained restricted and the jobless rate hit 10%, there's a strong public sentiment that banks should return the favor.
Of course, not everyone agrees with this line of thinking. The banks, predictably, are furious, especially those that have already repaid their TARP money.

The U.K. is already running into resistance over its 50% "bonus tax." It's likely to assume that there will also be strong pushback in this country to the idea of an extra tax on financial institutions. Even those who support the idea acknowledge it will be difficult to implement and creates the risk that banks will just pass along the cost to their customers in the form of higher fees and interest rates on loans.

For this reason, Brookings' Elliott says it's important that any levy against the banks be moderate and be collected over a long time period. He says a smaller tax is more likely to come out of bank officers' compensation packages than be kicked forward to consumers entirely.

Also, while the banks doling out the big bonus bucks make the headlines, there are still a lot of other banks in rough shape. Taxing them too heavily, Elliott warns, could hamper or even squash their recovery entirely.

Collecting the tax over a longer period would give Americans the satisfaction of knowing that the government is reclaiming some of the money it spent to keep us out of a second Depression, but spreading out some of the burden to a time in the future when all banks (not just the handful of big ones raking in profits) are healthier.

"I'm more confident," says Elliot, "banks will be able to pay the aid back if you look in the longer term."
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