Geithner Dismisses Tax on Financial Transactions as Unworkable
Treasury Secretary Timothy Geithner, throwing cold water on a plan by congressional Democrats to tax financial transactions, said banks and other market participants would find ways to circumvent the expense.
“I have not seen the version of that that I think works,” Geithner said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” that airs throughout the weekend. Firms are “going to move in a heartbeat to get around any tax like that.”
The Treasury chief also predicted a “quite high” chance that the U.S. unemployment rate will be lower than 10 percent in a year, and he called yesterday’s Labor Department report showing the smallest monthly job loss in two years “progress but not good enough.”
Geithner also continued to push Congress to pass legislation that would rewrite financial rules and said that the Obama administration was close to announcing a new tack for the $700 billion bailout. Geithner said he expects the Troubled Asset Relief Program to get as much as $175 billion in repayments from banks by the end of next year.
The prospect of a so-called Tobin tax, floated last month by U.K. Prime Minister Gordon Brown, is already provoking nervous U.S. financial companies to lobby for its defeat. Democrats, including Oregon Representative Pete DeFazio and Iowa Senator Tom Harkin, this week proposed taxing large transactions in stocks and derivatives. House Speaker Nancy Pelosi said the idea has a “great deal of merit.”
Tobin Tax
In yesterday’s interview, Geithner, echoing some of the banking industry’s reasons for opposing a Tobin tax, said he was concerned it wouldn’t be able to be adopted globally, making it harder to impose. He also noted that the tax may hit less sophisticated investors, instead of the big firms.
“There’s a real risk that retail investors, who’ve got fewer choices, they end up bearing the cost of the tax,” he said.
On another tax issue, Geithner questioned the effectiveness of providing businesses with a $5,000 credit for each new net job they create. Some have predicted the measure could help the economy add as many as 1.5 million new jobs.
“Just to be frank about it, there’s a lot of people in the business community and the academic community who are not confident that that particular proposal would be that powerful,” Geithner said. “But we’re going to keep looking at it.”
TARP Changes
On the TARP, Geithner said the administration was in the process of putting the final touches on a major refinement of the effort.
“We’re going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges,” he said.
He didn’t say whether he will seek to extend the program for another nine months, as the law allows, when it expires on Dec. 31.
Geithner also said he was confident that loopholes concerning derivatives, inserted into legislation Congress is crafting to overhaul financial regulation, would be tightened before a law is passed.
Airlines, energy companies and other firms that rely on derivatives to protect their businesses against swings in oil and commodities prices would be exempt from most new requirements in House of Representatives bills designed to rein in more speculative trading. The House legislation is slated for votes next week. A Senate version has fewer exceptions.
‘Evade’ Protections
“There is support for trying to make sure that we tighten up those exceptions and, again, they don’t provide a way for firms to evade those basic protections,” Geithner said. “We have a very good chance of getting a very strong bill.”
Overall on the economy, Geithner said a “key test” will be when companies begin to add to their payrolls.
“The economy is now growing and growth seems to be gradually strengthening,” he said. “You see pockets of real strength now in technology and exports and I think they are hopeful signs of progress.”
Geithner and other Obama administration officials this week held a forum at the White House to brainstorm about ways to bolster job creation in an economy that lost 7.2 million jobs since the recession began in December 2007.
Filed under: technology by Wolf