Obama floats $30 bln bank tax as TARP costs shrink

The Obama administration is proposing a much smaller $30 billion tax on the largest financial institutions, in line with shrinking U.S. corporate bailout costs.

The Financial Crisis Responsibility Fee in the proposed fiscal 2012 budget would collect $30 billion over 10 years to recoup the costs of bailing out troubled financial institutions during the financial crisis.

This compares with the administration's proposal last year to collect $90 billion over 10 years.

The Treasury Department now estimates that the overall costs of the bailout program -- authorized for up to $700 billion -- will come to about $28.12 billion, including American International Group shares formerly held by the Federal Reserve.

A year ago, when the bank tax was first proposed, the bailout costs were estimated at more than $100 billion. Since then, General Motors Co launched a successful initial public offering, the Treasury sold off its shares in Citigroup and American International Group staged a turnaround, positioning taxpayers for a major profit.

Although some analysts predict that TARP ultimately will earn a profit -- even including non-recoverable housing rescue costs -- the bank tax would be imposed on U.S. institutions with $50 billion or more in consolidated worldwide assets.

The financial crisis responsibility fee is intended to recoup the costs of the TARP program as well as discourage excessive risk-taking, as the combination of high levels of risky assets and less stable sources of funding were key contributors to the financial crisis, the Treasury Department said in documents on tax proposals associated with the budget.

It would charge fees of 0.075 percent a large financial firm's covered liabilities -- essentially its risk-weighted assets, less capital, insured deposits and certain small business loans. Firms could get a discount if they use long-term funding sources and the fee could be deducted from corporate income tax.

The proposal is expected to run into opposition from Republicans in Congress, who opposed last year's bank tax on the grounds that it will make U.S. financial firms less competitive and be passed on to consumers.

The Obama budget plan included a TARP cost estimate of $48.29 billion, based on share prices and holdings on November 30. This excluded the Fed's AIG stake, which was transferred to Treasury in January.

Treasury Secretary Timothy Geithner has recently said he believes a Congressional Budget Office estimate of $25 billion may be too high.

(Reporting by David Lawder, Editing by Sandra Maler)