Huffpost Business

Obama's Bank Fee Could End Up Costing Customers, Warns CBO

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For those concerned about restricted credit and a decrease in lending, don't expect Obama's proposed tax on America's biggest banks to help.

In a letter to Sen. Chuck Grassley (R - Iowa), the Congressional Budget Office said that the proposed bank fee "would probably lower the total supply of credit in the financial system to a slight degree. It would also probably slightly decrease the availability of credit for small businesses."

The tax, which was pitched as a way to fully recoup taxpayer funds used to bailout the financial system, is projected to recoup about $90 billion in revenue over the next 10 years. President Obama vowed to reclaim "every penny" from bailed-out institutions.

Though critics -- the bank lobby, in particular -- call the tax a punitive measure and say it could increase the cost of credit, it could presumably provide a leg up for smaller banks. The tax would only apply to the nation's 50 largest banks with assets of $50 billion or more.

But, in one sentence alone, writes Rolfe Winkler, the CBO may have thwarted Obama's "highly sensible" bank fee:

Despite the "slight" qualifier and comments elsewhere that the fee would help level the playing field for small banks, the loss of any credit whatsoever for "small businesses" is something Congress hasn't been able to stomach.

The CBO report also says that the cost of the tax would be passed on to consumers rather than shouldered by the banks. Here's Bloomberg:

The cost of the proposed fee would ultimately be borne to varying degrees by an institution's customers, employees, and investors, but the precise incidence among those groups is uncertain," the CBO said...

Customers would face higher borrowing rates and other charges, employees might receive less pay, and investors will face lower stock prices, the CBO said.