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Argument: Bank tax recoups profits made on backs of taxpayers

Issue Report: 2010 US bank tax

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Simon Nixon. “Windfalls Show That Bonus Tax Makes Sense.” Wall Street Journal. October 20, 2009: “A windfall tax is blunt, arbitrary and something supporters of free markets usually instinctively avoid. Even so, following news that Goldman Sachs Group has already set aside a $16.7 billion bonus pool for 2009, the case for windfall taxes on banks that pay giant bonuses is becoming unanswerable. […] This year’s bank profits are windfalls in the purest sense. They aren’t the due rewards for exceptional skill but gifts from taxpayers. Many banks are earning huge, risk-free profits borrowing from central banks at ultralow interest rates and lending back to governments at much-higher rates. If this giant, hidden subsidy was being used to support new lending, fair enough. Instead, it looks destined for bankers’ pockets.”

“Whose bonuses are they?” New York Times Editorial. January 14, 2010: “For the sake of fairness, Congress should pass a one-off windfall tax on bonuses. After all, what profits the banks had in 2009 were largely underwritten by taxpayers, who pumped in billions of dollars of capital, covered losses from the collapse of the American International Group and guaranteed the debts of Fannie Mae and Freddie Mac. The Federal Reserve lent hundreds of billions against shoddy collateral that no one else would touch and the Federal Deposit Insurance Corporation guaranteed loans worth hundreds of billions more.”