The Radical Plan to Force the Biggest Banks to Pay the Government $86 Billion

A recent proposal to overhaul the tax code in the United States could result in the biggest banks like Bank of America shelling out billions more to the U.S. Government each and every year.

Mar 8, 2014 at 3:00PM

Hate your taxes? Hate the banks? One proposal is seeking to revolutionize both.

Many have taken issue with the taxes -- or lack thereof -- paid by companies in recent years, yet a plan announced last week by Congress is proposing major a change in what the biggest financial institutions will pay. This could have dramatic impacts to firms including Bank of America (NYSE:BAC)AIG (NYSE:AIG)Citigroup (NYSE:C)Wells Fargo (NYSE:WFC), and JPMorgan Chase (NYSE:JPM).


Chairman of the Ways and Means Committee, Dave Camp (R-Mich.), revealed his plan "to fix America's broken tax code by lowering tax rates while making the code simpler and fairer for families and job creators," in the Tax Reform Act of 2014, which proposes to simplify the tax code and reduce the burden face by individuals as a result of the current tax system.

The 979 page legislation is full of changes aimed to result in more growth for the United States economy, more jobs available to Americans, and ultimately more money back into the pockets of millions. 

The plan also introduces an additional tax on the biggest financial institutions.

By Leader Nancy Pelosi

President Obama signing Dodd-Frank.
Source: Flickr / Leader Nancy Pelosi.

The extension of Dodd-Frank
The Dodd-Frank act was passed in the wake of the financial crisis and brought change across the broader banking landscape. It also included the designation of the Systemically Important Financial Institution, (SIFI).

Yet the Tax Reform Act of 2014 takes issue with the provision of the SIFI designation and highlights this implicit government guaranty results in the biggest banks paying lower costs to borrower money. The proposal notes it "cannot undo Dodd-Frank," but it does seek to "ensure that Wall Street reimburses the American taxpayer for a portion of the subsidy it receives." 

The plan aims to introduce an additional tax which would require any financial institution with more than $500 billion in assets to pay a 0.035% tax on every dollar of their assets above $500 billion. In addition, it seeks to provide greater transparency across the variety of transactions banks are involved in.

What it would mean
While 0.035% doesn't sound like a lot, it is important to remember that is the quarterly suggested rate. That would mean a total tax of 0.14% of assets above $500 billion for the full year. And when you consider JPMorgan Chase has $2.4 trillion in assets that means it could expect an astounding $2.7 billion in additional tax payments. Bank of America would be next on the list with $2.3 billion in additional taxes:

Source: Federal Reserve.

In total, the four largest banks would shell out $8.3 billion back to the Federal Government in the form of additional taxes, which would ultimately be taken straight out of the net income which is available to shareholders:

Source: Company Investor Relations.

In total, the Joint Committee on Taxation anticipates the new taxes would result in $86.4 billion paid to the government as a result of this tax from 2015 to 2023.

The bottom line
The Tax Reform Act of 2014 poses a number of notable initiatives and it is estimated it could result in 1.8 million new private sector jobs, grow GDP by as much as $3.4 trillion -- 20% of current levels -- and result in the average middle class family seeing $1,300 back in their pockets as a result of lower tax rates and economic growth. Those are all undeniably good things.

Yet one has to have some level of concern surrounding what higher taxes at banks could mean for the economy. They could attempt to overcome the impact by charging higher rates on loans to consumers, increasing fees, turning away depositors, or perhaps even expanding efforts to shelter themselves through off-balance sheet assets like derivatives.

The biggest banks have faced an appropriate amount of scorn for their roles in the financial crisis, but they are also one of the engines for economic growth and development in America. While that doesn't excuse prior actions, one has to wonder if the pendulum has now swung too far in the other direction, which could have an equally disastrous result.

Taking advantage of the banking revolution
From taxes, to regulation, to technology, changes are sweeping across financial services. And all too many customers are dissatisfied with the biggest banks. While that's not great news for consumers, it certainly creates opportunity for savvy investors. That's because there's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banking model. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. For the name and details on this company, click here to access our new special free report.

Patrick Morris owns shares of American International Group and Bank of America. The Motley Fool recommends American International Group, Bank of America, and Wells Fargo. The Motley Fool owns shares of American International Group, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers