×

Obama's Big Bank Tax Is Fair, Won't Hurt Economy: Geithner

President Obama's proposed bank tax will not have a damaging effect on the economy and is a fair way to reimburse taxpayers for the bailout of Wall Street during the financial crisis, Treasury Secretary Timothy Geithner told CNBC Thursday.

Timothy Geithner
Source: Pete Souza
Timothy Geithner

"This policy is not designed to punish," Geithner said. "We're doing it in a way that is in effect a tax on leverage. It's a tax on risk in some ways, and it's born by the people that benefited most from the crisis. That seems fair."

Geithner said the cost of the crisis will be about $100 billion, far lower than many predicted. But the administration still has a "legal obligation" to cover the cost, he said.

President Obama's proposal,announced Thursday,would require big financial institutions to pay $90 billion over a 10-year period. The full details of the plan will be released in February when Obama announces his budget for the 2011 fiscal year, but it includes a tax of 0.15 of a percentage point on the balance sheets of firms with assets of more than $50 billion.

Geithner said he doesn't think the tax is large enough to cause banks to restrict lending further. But he said the administration decided to cap the charge — instead of raising it to help reduce the deficit — to ensure this wouldn't be a problem.

Further, the plan is also a way to restore average Americans' confidence in the country, he said. Many people are upset with the large bonuses that continue to be distributed in the financial sector, and this is one way to show them the government won't stand idly by.

"It's just very hard for people to understand, with unemployment at 10 percent...with millions of Americans on food stamps...that you could see compensation practice produce such huge returns to people who were at the center of this mess," he said.

But many financial firms consider the fee unfair because it will apply even to those companies that have already repaid the rescue funds they received, as well as to firms that got no bailout money to start with.

Separately, Geithner said he will testify before a congressional committee on insurer AIG's payments to banks after its bailout.

He will be asked to answer questions about whether the New York Fed in late 2008 urged AIG not to disclose that the company was paying other Wall Street firms 100 percent to liquidate credit default swaps. At the time, Geithner was head of the New York Federal Reserve.

Geithner told CNBC he said he thinks the New York Fed disclosed all the proper information on AIG, and that the government did the right thing in rescuing the struggling firm.

"If we could have done it differently we would have done it differently, but this was the best way to do it," he said.

Geithner said he will also testify before the Congress' Financial Crisis Inquiry Commission, as it looks into the causes of the financial crisis. He has already recognized that part of the collapse was caused by policy-makers, who didn't do enough to prevent a crisis.

On the jobs front, Geithner said the government can afford a new $2 billion job-creation plan.

He said the administration will need to continue to work hard to prevent a double-dip recession, and that it is not considering temporary tax cuts on the highest-income households.

And despite a large heap of criticism from Democrats who say his ties are too close with Wall Street, and from conservatives who say there is too much government intervention in the economy, Geithner said he will continue serving the President as long as he wants him to.

"My job is to make sure I'm doing everything I can to help the President," he said. "We are doing a very effective job of starting to repair the damage."

Reuters contributed to this report