Congress Scraps Bank Tax in Wall Street Reform Bill Deal

congressional negotiators agreed to abandon a $19 billion tax on banks and hedge funds
congressional negotiators agreed to abandon a $19 billion tax on banks and hedge funds

Desperately trying to secure passage of the Wall Street reform bill, congressional negotiators agreed to abandon a $19 billion tax on banks and hedge funds after Republicans balked over the measure.

Instead, lawmakers agreed to end early the $700 billion Troubled Asset Relief Program -- TARP -- and use the $11 billion savings to pay for the legislation. Additionally, lawmakers agreed to increase premiums payed by the biggest banks to fund the Federal Deposit Insurance Corporation and use the resulting $5.7 billion to further offset the billl's cost.

Democrats reopened the financial reform conference committee after Sen. Scott Brown (R-Mass.) and some of his colleagues protested the bank tax.

"To get the enough votes to pass this bill, we have to do this," said Rep. Barney Frank (D-Mass.), who chairs the House finance committee.

Brown Protests Bank Tax Addition

Brown had initially supported the bill but reversed himself after the bank tax was included at the last minute.

"This tax was not in the Senate version of the bill, which I supported. If the final version of this bill contains these higher taxes, I will not support it," Brown wrote in a letter to Sen. Chris Dodd (D-Conn.) and Rep. Frank on Tuesday. "It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis."

Republicans, particularly budget hawks led by Sen. Judd Gregg (R-N.H.), tore into the proposed fix, accusing Democrats of using accounting gimmicks to make the bill budget neutral. "This is the kind of accounting that would make Bernie Madoff blush," said Rep. Jeb Hensarling (R-Texas).

TARP Funds Meant to Reduce Deficit

In particular, Republicans were incensed that the bill would use money from TARP meant to reduce the deficit and money from the FDIC designed to help help people whose local banks had failed.

"How do you spend the money twice?" asked Gregg. "This ranks right up there at the top of the list for pure deception."

With the passing of Sen. Robert Byrd (D-W.Va.), the Senate now has 58 Democrats and independents who caucus with them -- two short of the 60 votes needed overcome a Republican filibuster and send the bill to the Senate floor for an up or down vote.

Because Sen. Maria Cantwell (D-Wash.) and Sen. Russ Feingold (D-Wis.) have said they will oppose the bill, Democrats will need at least four Republicans to join them to defeat the filibuster.