Daily Tax Update - May 11, 2010

SENATE FINANCE HOLDS THIRD HEARING ON BANK TAX: Today, the Senate Finance Committee held its third and final hearing on the Administration’s proposed Financial Crisis Responsibility Fee (or “bank tax”). The four witnesses were: (1) David C. John, Senior Research Fellow, The Heritage Foundation, (2) Douglas Elliott, Economic Studies, Brookings Institution; (3) Edward DeMarco, Acting Director, Federal Housing Finance Agency; and (4) Nancy McLernon, President and CEO, Organization for International Investment (“OFII”).

• Senator Baucus noted in his opening statement that, “[w]hen we close our series of hearings today, we will have established on sold foundation to build upon as we move forward on the bank tax.”
• In his opening statement, Ranking Member Grassley expressed concerns about the Administration’s revised proposal, which would apply the tax to risk-weighted assets. Senator Grassley stated, “Under the new version of the tax proposed by the President, small business loans would be considered the riskiest assets held by the banks, and therefore subject to the highest taxes. Considering the 9.9 percent unemployment rate, the trouble small businesses are having getting credit, and the proposed tax hikes on small business, I am very concerned with that aspect of the proposal.”
• In response to a question from Senator Grassley regarding whether the concept of risk-weighted assets could be applied to insurance companies, Mr. Elliot stated that risk-weighted assets were not an “alien concept” to insurance companies. Mr. John argued that banks have a specific regulatory framework for calculating risk-weighted assets that could not be easily applied to insurance companies.
• Ms. McLernon, President and CEO of OFII, a trade association representing US subsidiaries of foreign-headquartered companies, testified that there is no international consensus on whether or how a tax should be imposed on financial institutions. She urged that international consensus on the form, purpose, and use of any tax must be reached before any G20 country adopts such a tax.
• Senator Baucus responded that many countries look to the United States for leadership, and the United States could show leadership by acting on the bank tax now. Senator Baucus stated that “sometimes you have to step up to the plate” and lead.
• Mr. DeMarco, Acting Director of the Federal Housing Finance Agency, stated that the current financial state of government-sponsored enterprises “makes them a poor candidate for inclusion in a fee proposal” because they have continuing losses that are already funded by the federal government, and applying the fee to them “would be an exercise in moving money between government accounts.”
• For additional information, contact Philip R. West - pwest@steptoe.com or Amanda Varma - avarma@steptoe.com.
• Testimony can be accessed here.

TAX BILL INTRODUCED MAY 10^TH:
S.3334 A bill to amend the Internal Revenue Code of 1986 to exempt survivor benefit annuity plan payments from the individual alternative minimum tax.
Sponsor: Sen Burr, Richard [NC] (introduced 5/10/2010)      Cosponsors (None)

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