The Short Life and Death of the “Bank Tax”

This briefing presentation evaluates a core premise behind the Conference Committee’s elimination of the $19 billion “bank tax” on the largest financial firms.

Critics of the bank tax successfully argued that any attempts to tax large banks would inevitably lead to higher pricing on customers and small businesses.

Lost in the hurried Conference Committee debate was the absence of any empirical backing for the critics’ argument.  Indeed, two factors would have likely combined to render the impact on customer pricing trivial.

First, only large banks would have been subject to the tax, so efforts to raise large-bank customer pricing, in many product markets, would have simply caused a market share shift to the smaller banks not subject to the levy.  Ironically, the Massachusetts retail deposit business is a clear example of such a market.

Second, even in those product markets dominated by large banks, the bank tax was so small that, even if its burden could have been shifted completely to customers, the impact would have been, in practical terms, undetectable.