"We want our money back," President Obama said last week, selling the proposed bank tax that according to the Treasury Department ensures "the TARP program does not add to the deficit."

A little background here: TARP -- the Troubled Asset Relief Program -- is 2008's bank bailout. It was assumed at the time (with good reason) that banks wouldn't be able to repay taxpayers in full. To blunt this fear, the bill states under no uncertain terms that:

the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that TARP does not add to the deficit or national debt.

That's both fair and responsible -- a rare combination in Washington. Look in the mirror and try to argue that the industry being showered in cash shouldn't be responsible for repaying it. You'll look really stupid.

But last week's proposed "Financial Crisis Responsibility Fee" has been fiercely condemned. And not just by bankers. Even Warren Buffett bluntly responded to the tax by telling CNBC, "I don't understand that."

What gives?  

Here's what. Originally meant for banks, TARP quickly found its way to insurance companies, auto companies, homeowners, you name it. Without arguing whether that was right or wrong, know that every penny -- every single penny -- of TARP's expected shortfall (roughly $117 billion) is projected to come from these nonbanking segments. Indeed, the banking segment of TARP is on track to score a $19 billion profit.

It's easy to say, then, that banks are being unfairly, maybe even unlawfully, billed for the losses of auto companies and insurance companies (meaning AIG, which, curiously, is exempt from the tax). TARP's repayment clause was meant to recoup money lost by TARP's intended patient: the financial industry. Why should the financial industry be on the hook for GM's and Chrysler's losses, most of which were several decades in the making? That's a good question no one has answered coherently.   

The counter is that, sure, banks have repaid TARP, but they also received an Easter basket of other financial goodies charged directly to taxpayers.

This is entirely true. TARP, in some ways, is on the smaller end of bank subsidies doled out over the past two years. Whether this was necessary, no one can sanely argue that banks shouldn't be responsible for repaying these additional giveaways. And there were several of them: Fellow Fool Chris Barker lays out the depressingly long menu of goodies here.

One example is the Temporary Liquidity Guarantee Program (TLGP). Worried that financial institutions wouldn't be able to raise capital, the FDIC began backstopping financial debt in late 2008, making it risk-free for those who bought it. Quite literally, banks were able to borrow for next to nothing while taxpayers (who explicitly back the FDIC) bore all the risk.

Moreover, TLGP is wholly voluntary, unlike TARP, which banks were forced to participate in even if they begged and pleaded to stay out of it.

As of Nov. 30, here's how much the largest financial institutions still held:

Company

TLGP Debt Outstanding

Weighted Average Yield

General Electric (NYSE:GE)

$88 billion

0.77%

Citigroup (NYSE:C)

$64.6 billion

0.91%

Bank of America (NYSE:BAC)

$44.5 billion

0.67%

JPMorgan Chase (NYSE:JPM)

$39.7 billion

0.73%

Morgan Stanley (NYSE:MS)

$25.1 billion

0.70%

Goldman Sachs (NYSE:GS)

$21.2 billion

0.77%

Wells Fargo (NYSE:WFC)

$9.5 billion

0.68%

Source: Bloomberg.

As Daniel Gross from Slate writes:

For every 100 basis points (i.e., if that debt bore an interest rate of 1.7 percent instead of 0.7 percent), Goldman is saving $213 million in interest costs per year. In the spring of 2009, when much of this debt was issued, the spread -- i.e., the difference between the interest rates charged to private-sector corporate borrowers and to the government borrowers -- was significant. In April 2009, it stood at 540 basis points. I don't know what to call this other than a huge subsidy.

Bingo: TLGP, along with several other programs, are huge, direct subsidies by any definition. If the bank tax were presented as a way to compensate taxpayers for these programs, we'd have no problem. People would love it. Beg for more of it. Wonder why it took this long to do it. Instead, it's been presented as a way to recoup money that, to be fair, has already been recouped. That makes the whole thing look groundless, vengeful, and prone to confuse an already bamboozled public.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.