Dollars and Jens
Friday, January 15, 2010
to-big-to-fail tax
Mankiw on the new proposed bank tax:
President Obama has proposed a special tax levied on large financial institutions.  In general, I am skeptical of narrow-based taxes, as they feed a particularly nasty kind of politics, where the majority gangs up on a minority.  And I am turned off by the populist rhetoric coming from the administration, which suggests the issue pits Wall Street fat cats against ordinary Americans.  Nonetheless, on the economic merits, there may be a case for the bank tax.
The case being, more or less, that it offsets failure-insurance that is otherwise being provided for free — or, certainly, being perceived to be provided for free, which has the same effect on investors — by the American taxpayer.

Mankiw notes that, in actual political practice, any new tax law
certainly won't be perfect. But it is possible that it will be better than doing nothing at all, watching the finance industry expand excessively, and waiting for the next financial crisis and taxpayer bailout.
What Obama has proposed I believe fits this description, insofar as I've heard any details that exist; Congress seems to have developed a habit of taking decent or defensible ideas from Obama and making them disasters, though, so while it's not obvious to me how they can impair this idea that badly, I'm not going to say they can't pull it off.

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