“The user fee is a partial payment for the implicit guarantee it receives from Uncle Sam. The rationale behind such a fee is that since taxpayers are bearing an implicit risk on [the institution’s] activities, it is reasonable that the federal government recoup fees to pay for that assumption of risk. The main advantage of such a fee is that it would help level the playing field between [the institution] and its fully private competitors.”
What is “[the institution]“? It’s Fannie Mae, and that’s Stephen Moore of the Cato Institute testifying before Congress in 2000 in support of “a ‘user fee’ of 10 to 20 basis points on [Fannie’s and Freddie’s] debt to level the playing field between Fannie and competitors.”
That’s from Representative Brad Miller’s op-ed pointing out that a small tax on debt issued by financial institutions that enjoy an implicit government guarantee is something that Republicans (and even the libertarians at Cato) used to be in favor of.
My guess is that Republicans and even the libertarians are still in favor of taxing debt issued by financial institutions that enjoy an implicit government guarantee. At this level of abstraction, 2000 Stephen Moore has it right; it’s just common sense that the taxpayers should get something in return for backstopping that risk.
The problem is with the package deal. As Kwak seems to be acknowledging here, if you justify a tax on the big banks on the grounds that they enjoy an implicit government guarantee, you are codifying that they are too big to fail and that from that point on they will benefit from socialized losses and privatized gains.
You can quibble about the details and argue that it’s possible to construct a tax that would recoup some of the taxpayers’ money without institutionalizing too big to fail for the few banks in consideration. But from this big-picture view it seems like lemon socialism for the big banks in return for a bank tax is a bad deal. We’d be better off with banks that aren’t GSEs.
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