Treasury Secretary Timothy Geithner made his case for a bank tax to lawmakers on Capitol Hill Tuesday, calling it a "simple and fair principle" to help the government recover bailout money.
The proposal would impose a 10-year, $90 billion tax on the largest financial institutions to recoup money from the government's Troubled Asset Relief Program (TARP) put in place to resolve the financial crisis.
Geithner said the tax would be levied on banks, broker-dealers and insurance firms that have more than $50 billion in assets.
Geithner faced a bipartisan grilling during a Senate Finance Committee hearing, where members expressed concern about the impact of the proposed tax on community banks and small businesses.
The Obama administration proposed the tax, officially called the Financial Crisis Responsibility Fee, in January in response to public outrage over bank bailouts. The proposed tax is not part of the administration's planned overhaul of financial regulations and would require congressional approval. "This is a simple and fair principle: banks, not the taxpayer, should pay for bank failures," Geithner said.
Representatives at the hearing from the American Bankers Association, Financial Services Roundtable, and the Iowa Bankers Association opposed the bank tax.
James Chessen, representing the American Bankers Association, said he was concerned that smaller banks would feel the ripple affects of a tax on larger banks.
Geithner said smaller banks not facing the levy could become a more enticing option for banking, should larger financial institutions pass fees onto their customers.
Senate Finance Committee Ranking Member Charles Grassley, R-Iowa, told Politics Daily, "I think it's going to be tough on small business. We've got to be concerned about small businesses not getting loans. I don't think the bank tax is going to affect or in any way discipline the risky behavior of big banks. I think it's just a deal to raise money."
Grassley asked Geithner if the president would veto the measure if it did anything other than recover funds from the bank bailout.
Geithner dodged Grassley's veto question, but said he and the president feel "very strongly" that proceeds from the tax "should go to reduce the deficit."
Sen. Orrin Hatch, R-Utah, asked Geithner why banks that repaid their TARP loans should have to pay a new tax.
"It's not going to seem fair to everyone, and there's no perfectly fair approach," Geithner said, adding that 99 percent of U.S. financial institutions would not be subject to the proposed tax.