WASHINGTON — Bank lobbyists are increasingly worried that the Senate Republicans may go further than the House in taxing large financial institutions as part of their tax reform push.
Among other things, the House GOP plan would eliminate the deduction for larger banks’ insurance premium assessed by the Federal Deposit Insurance Corp. Banks oppose that idea but may be willing to live with it given the proposed lowering of the overall corporate tax rate.
Yet there is concern the Senate plan may widen the scope of a tax on banks in a search for more funds. Details about the Senate plan have been kept close to the vest, but lawmakers indicated that relying on banks to raise additional revenue has been discussed.
A bank tax has been a “concern,” Senate Banking Committee Chairman Mike Crapo said in an interview Wednesday, while emphasizing that he has “consistently opposed applying new taxes, frankly, across industry and in particular to the banking industry.”
Ultimately, the Idaho Republican said he doesn’t believe there will be a bank tax in the Senate proposal, which is expected to be released as early as Thursday by the Finance Committee.
But analysts pointed to a potential moderating of the House proposal to cap the mortgage interest deduction at $500,000 as creating a need for the Senate find more revenue raisers.
“We think it is possible tax-writers might look at additional options, especially if the cap on the [mortgage interest deduction] is raised. This could include additional limits on the business interest deduction, which in the current proposal does not significantly impact banks,” Brian Gardner, an analyst for KBW, wrote in a note to clients.
Another fear is that Senate Republicans could breathe new life into a 2014 proposal by former Rep. Dave Camp, R-Mich., that would have tax bank assets above $500 billion.
Lawmakers could also look to expand on the House proposal to get rid of the FDIC premium deduction for banks above $50 billion of assets with a phase-in period for banks between $10 billion and $50 billion. They could also look to get rid of the deduction for community banks with less than $10 billion.
Camden Fine, president and chief executive of the Independent Community Bankers of America, said he hasn’t been given any indication that the Senate plan will include a bank tax but said it’s been idea that has been around since the financial crisis and “it would not surprise me” if the idea were "sneaked" into the proposal.
“ICBA will fight any proposed bank tax or elimination of FDIC premium deductions,” Fine said.
Sen. Thom Tillis, R-N.C., who sits on the banking panel, said while banks may not end up winners in all aspects of tax reform, they will benefit from the entirety of what Republicans will offer.
“I am looking more at the bigger picture. If we start taking this apart one piece at a time, we don’t get to a outcome, so it is more looking at the bigger picture and how does the industry get affected overall, especially as it pertains to regulatory relief,” Tillis said.
Regulatory relief legislation hasn’t been put forward, but Republicans are optimistic that negotiations between Crapo and moderate Democrats on the Banking Committee will be productive.
“Right now I am just focused on negotiating to see if we can find some broad support for a bill,” Crapo said of that effort.
He said that altering the systemic threshold for large banks, which the Dodd-Frank Act set at $50 billion of assets, is “definitely” still on the table.
“That is a very important issue,” Crapo said.