The tax reform plan released by the Chairman of the House Ways and Means Committee, Representative Dave Camp (R-MI), included a new excise tax on some systemically important financial institutions (SIFIs). Under the Camp plan, bank and non-bank companies designated as SIFIs under the Dodd-Frank Act would be subject to a quarterly excise tax equivalent to 0.035 percent of their total consolidated assets in excess of $500 billion. The excise tax, which would take effect in January 2015, would produce estimated revenues of $86.4 billion over a ten year period.
Several commentators have noticed a parallel between the Camp plan and the Financial Crisis Responsibility Fee proposed by President Obama in January 2010. Under the administration’s original proposal, all financial institutions with consolidated assets greater than $50 billion (the current SIFI threshold) would have been required to pay a fee equivalent to 0.15 percent of their covered liabilities, a figure later raised to 0.17 percent in the president’s 2013 and 2014 budget proposals. The most recent estimates from the Obama administration indicate that that the fee would raise $59.3 billion over ten years – $27.1 billion less than the estimated revenue generated under the Camp proposal.
|Financial Responsibility Fee
|Excise Tax on SIFIs
|Estimated Revenue Raised||$59.3 billion*||$86.4 billion|
|Financial Companies Covered||>$50 billion in consolidated assets||SIFIs with >$500 billion in consolidated assets|
|Assessments Calculated On||Covered Liabilities (excludes FDIC deposits and equity capital)||Assets (excludes first $500 billion)|
|Assessment Rate||0.17 percent*||0.035 percent|
|Expiration Date||After a minimum of 10 years and all TARP monies repaid||Does not expire|
*Revenue projection and assessment rate contained in the president’s 2014 Budget. The president’s original 2010 proposal was projected to raise $90 billion over 10 years and would have charged an assessment fee equivalent to 0.15 percent of covered liabilities.
Despite the similarities between the two proposals, there are three critical differences. First, the baseline used to calculate the two differ. The Camp proposal is based on assets – such as loans, securities and reserves – while the Obama plan is based on certain debt liabilities. Put more simply, the Camp proposal would tax institutions according to size, while the Obama proposal would tax institutions in some proportion to the degree of their leverage.
Second, owing to the $500 billion in consolidated assets exemption, the Camp plan would impact far fewer institutions than the Obama proposal would. Based on December 2013 asset filings with the Federal Reserve and the current SIFI designations approved by the Financial Stability Oversight Council, the excise tax would be levied on only nine companies. By contrast, with its $50 billion in consolidated assets threshold, the Obama plan would apply to a significantly larger number of financial institutions.
Finally, and perhaps most notably, the fee proposed by the administration was to be temporary, expiring after ten years, assuming that all TARP monies had been repaid at that point. By contrast, the Excise Tax proposed by Representative Camp would become a permanent feature of the tax code. However, it is important to note that the $50 billion threshold in the administration’s proposal is not indexed and hence in real, economic terms would capture more firms over time. This is similar to the threshold for SIFI designation under the Dodd-Frank Act, which is not-indexed, resulting in more firms being captured over time. In contrast, the Camp proposal indexes its $500 billion asset exemption to GDP growth, therefore significantly reducing the likelihood of “bracket creep” over time.
In sum, while the two proposals have many similarities, they would have significantly different impacts on the size and structure of the financial industry, particularly in the long-run.