A Republican proposal to revise the U.S. tax code will benefit large banks by helping them stanch job losses within the industry, said Representative Kevin Brady, the chairman of Congress’s Joint Economic Committee.
While the plan would impose a quarterly 3.5 basis-point tax on the assets of the biggest U.S. banks, including JPMorgan Chase (JPM:US) & Co. and Bank of America (BAC:US) Corp., it would lower the corporate tax rate, Brady said on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. The Texas Republican is also a senior member of the House Ways and Means Committee.
“If you look at the whole package, I think this has much more benefit, especially as banks are laying off thousands of workers because of this disappointing economy,” he said.
House Ways and Means Chairman Dave Camp, a Michigan Republican, released the tax proposal Feb. 26. The plan would lean on financial institutions to help pay for reducing the corporate rate to 25 percent by imposing a quarterly tax on assets exceeding $500 billion.
President Barack Obama is to unveil on March 4 his budget request for fiscal 2015, which will include suggested changes to tax law.
The quarterly tax proposed by Camp would affect about 10 companies -- the largest banks along with non-bank institutions such as General Electric (GE:US) Co.’s financing arm -- deemed systemically important. Other banks that probably would be affected include Citigroup Inc., Wells Fargo (WFC:US) & Co., Goldman Sachs Group Inc. and Morgan Stanley. (MS:US)
The government also has designated American International Group Inc. (AIG:US) and Prudential Financial Inc. (PRU:US) as systemically important institutions. MetLife Inc. is in the final stage of the designation process.
“Here would be my advice to the big banks,” said Brady, 58. “Take a look at the whole package, even the economic growth and especially impact on customers, and if you’ve got a better idea on how to help us lower tax rates, bring it. We’re listening.”
A Feb. 26 letter from 11 financial industry trade groups called the bank tax a “glaring diversion” from the principle of a tax system that is neutral across industries.
“It is no better to drive capital away from certain industries or sectors than it is to divert capital to favored industries through special tax breaks,” wrote the groups, including the Consumer Bankers Association and the Financial Services Roundtable.
Camp wants to cut the top individual rate to 35 percent from 39.6 percent and the top corporate rate to 25 percent from 35 percent.
Brady, at a Bloomberg Government breakfast in Washington earlier today, said the banking industry is “one of the big winners in a pure rate cut” because it doesn’t tend to take advantage of breaks such as the research and development tax credit and depreciation that other industries do.
“In my view, every industry has to contribute something to lower corporate rates,” he said. He described Camp’s proposal as a draft discussion for an “adult conversation.”
Brady said a revision of the tax system may boost economic growth and that changes should be set in motion before the political focus shifts to 2016 presidential campaign.
“The thought of waiting for a new president, waiting that long to try to jump-start the economy, wasn’t really an option,” he said.
Brady, who previously led the House Ways and Means Committee’s trade panel, also said that waiting until after this November’s midterm elections to pass legislation aimed at easing congressional approval of trade bills would be an “economic mistake.”
About three quarters of House Democrats and at least 25 Republicans oppose giving President Barack Obama the “fast-track” authority he is seeking to expedite passage of trade deals, on grounds that lawmakers should have more input in the accords.
The administration wants fast-track authority, also known as trade-promotion authority or TPA, to help it reach an agreement with 11 Pacific-rim nations.
Boeing Co. (BA:US), General Electric and Wal-Mart Stores (WMT:US) Inc. are part of a business coalition that supports fast-track legislation that leaders of the congressional panels dealing with trade introduced last month. Not passing the legislation would cause discussions taking place for the Trans-Pacific Partnership trade deal to lose momentum, Brady said.
“The president really needs to weigh in,” he said. “He has the potential of going down as the strongest pro-trade president in a long, long time if he’ll help us move trade promotion authority in a timely way.”
Discussing newly minted Federal Reserve Chair Janet Yellen and issues she faces as the central bank begins to curtail its bond-buying program to keep interest rates low, Brady said, “She’s got a tough challenge.”
Those challenges include keeping inflation low with interest rates at near zero percent and unwinding mortgage-backed securities.
“She’s taking the first step on a thousand-mile journey,” Brady said. “And while the Fed’s supremely confident that they can do that, central banks historically aren’t very good at that.”
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