President Obama and Secretary Tim “TurboTax Screwed Me” Geitner approached the White House microphone today to bitch and moan about how much bank executives are getting paid, and announced a new tax plan to stick it to big-bank. The problem … big-bank will just pass along the tax burden to you.
That’s what will happen. I’ll say it again, businesses and corporations do not pay taxes, people pay taxes. Although the president and secretary would certainly prefer the banks simply take those “outrageous” executive salaries and bonuses and send some of it back to Congress-critters to redistribute as they see fit, it does not work that way.
The banks charged the tax will have some choices to make. Certainly, they will most likely do a combination of the following:
- Cut income – both salary and bonuses – to executives. (Of which there are few in a large bank)
- Cut income – both salary and bonuses – to “regular” employees. (Of which there are many in a large bank). This could also include reductions in future merit increases.
- Cut marketing budgets. Who needs to pay those marketing firms for an advertising campaign anyway? (I’m sure those firms can find business elsewhere … or make cuts themselves.)
- Cut operating expenses. Use less paper, decrease telecommunications budgets, buy fewer paper clips … all of which they are already doing.
- Stop innovating. Who needs better ATMs, better online banking experiences and creative products anyway?
- Increase fees to customers. Heck … all of the other big banks will need to come up with funds to pay the tax too, so we’ll all just up our ATM fees from $2.50 to $3.50 per transaction!
- Tighten lending practices. Banks are willing to take risk to earn a profit. If more of the profit must be routed to the treasury, banks will be more risk adverse. In other words, they will lend money to customers who are low risk.
I’m sure there are other things a big bank can do – please do add them into the comments – but I guaranty you not one of the reactions banks will need to make will improve customer service, the quality of the product or lower prices. Just the opposite will happen.
By the way … Fannie Mae and Freddie Mac don’t seem to be a target of Obama’s scorn. Makes you go hummmmmm.
Some of you may say the only winners are the Congress-critters that get to spend the money on pet projects … but in reality, all of America looses. All the while, homeowner foreclosures hit a record in 2009 and 2010 reports to be much worse. Change baby … change!