Financial industry works to keep bank tax on ice

Financial industry works to keep bank tax on ice
© Greg Nash

Powerful lobbying groups in Washington are on guard against the revival of a proposed tax on banks and other financial institutions in the new Congress.

A bank tax was part of the 2014 tax reform proposal offered by then-House Ways and Means Committee Chairman Dave Camp (R-Mich.), drawing fierce pushback from the financial industry.

Now that GOP lawmakers are working to pass tax reform legislation, financial industry groups want to make sure the tax doesn’t come back if Republicans need a way to pay for lowering tax rates.

“I think the industry is united, from community banks to large banks, against any form of financial services tax,” Paul Merski, executive vice president for congressional relations at the Independent Community Bankers of America (ICBA), told The Hill.

In a letter sent to the leaders of the congressional tax-writing committees in December, the ICBA said that taxes focused on a specific industry “distort the market and generate counterproductive outcomes.”

“Even when such taxes exempt community banks, they set a troubling precedent: Once the tax code is opened up to target a specific sector it is difficult to contain the size, scope, and broader application of the tax,” the group said.

Under Camp’s plan, financial institutions considered to be “systemically important” under the Dodd-Frank Wall Street reform law would have to pay a quarterly tax of 0.035 percent of their total consolidated assets above $500 billion.

Camp included the tax as a way to raise revenue to pay for lowering tax rates. His office also argued that Dodd-Frank gave an implicit subsidy to large financial institutions and said tax reform could help to recover some of the subsidy.

The bank tax was among the most controversial elements of Camp’s plan. A group of House Republicans led by Rep. Patrick McHenry (R-N.C.) sent Camp a letter expressing concerns about it, and industry groups denounced the proposal.

Ultimately, Camp’s plan was not endorsed by House leaders or by other lawmakers, and it went nowhere.

As tax reform efforts heat up again, the financial industry is continuing to make the case that a bank tax would be a bad idea.

The industry has reasons to think its message is resonating. A bank tax was not included in the House Republicans’ tax blueprint, which the Ways and Means Committee is using as a starting point for legislation. The concept was not part of President Trump’s tax proposals during the campaign, either.

There’s also an interest among Republicans in easing financial regulations and rolling back portions of Dodd-Frank, rather than imposing new restrictions on banks.

Rep. Peter Roskam (R-Ill.), chairman of the Ways and Means Committee’s tax policy subcommittee, said recently at a Heritage Foundation event that he sees “zero possibility” of a bank tax.

Under Camp, “the drive for the bank-tax discussion was essentially driving just towards revenue, and there was not necessarily an underlying philosophy behind it,“ Roskam said. 

Now, “there’s not an interest in going that route,” he said.

Yet once Republicans get down to the details of tax reform, they are likely to explore different options for generating revenue.

Congressional Republicans intend for their bill to be revenue neutral after accounting for economic growth, meaning it won’t add to the deficit. House Republicans have sought to achieve that partly through border adjustment, which would include imports in the U.S. tax base and exempt exports.

However, the border-adjustment proposal has drawn criticism from some GOP lawmakers and business leaders, and it’s uncertain whether it will survive.

If the border-adjustment proposal is scrapped, lawmakers will have to come up with other offsets for tax cuts. That’s when the ideas in Camp’s draft could become part of the discussion.

“All of a sudden, those things that look bad before could come back,” said Micah Green, head of the financial services practice at Steptoe & Johnson.

James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, said it’s positive that a bank tax isn’t currently being discussed and that his group will be prepared if the idea is floated again.

“We want to make sure that idea is dismissed,” he said.

Banking lobbyists argue that a tax on financial institutions would hinder the goal of Trump and congressional Republicans to boost economic growth through tax reform. If banks had higher taxes, they would have less money to loan to customers, the lobbyists said.

Groups also are telling lawmakers that no single industry should be specifically targeted in tax reform.

“We don’t think our industry should be asked to pay for tax reform,” said Francis Creighton, executive vice president for government affairs at the Financial Services Roundtable. 

Generally, the financial services industry is supportive of tax reform, and preventing a tax on banks is only one of its priorities for an overhaul of the IRS code. 

“Tax reform, done right, will grow the economy,” Creighton said.