By Peter J. Wallison
Last Thursday, at New York’s Cooper Union, President Obama promoted the Senate financial reform bill while castigating its opponents. “Now, there’s a legitimate debate taking place about how best to ensure taxpayers are held harmless,” he said of Sen. Chris Dodd’s legislation. “But what’s not legitimate is to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed. That makes for a good sound bite, but it’s not factually accurate. It is not true. . . . And nobody should be fooled in this debate.”
Who is actually fooling the taxpayers about bailouts?
Last week, the Congressional Budget Office reported on the costs of the Dodd bill. It reviewed the budgetary effects of the bill’s $50 billion resolution fund for the large nonbank financial firms—insurance companies, securities firms, hedge funds, bank holding companies, finance companies and others—that are considered “systemically important” and thus too big to fail. These firms, among others, would be assessed for the $50 billion fund, which Mr. Obama apparently believes will not be a cost to the taxpayers.
But in a footnote the CBO reported that “such assessments would become an additional business expense for the companies required to pay them.” This means the assessments will be tax deductible, and place additional costs on other U.S. taxpayers to make up the difference in government revenue. Thus, even on the face of it, taxpayers will not completely escape the tax costs that are associated with this fund.
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