Word today that Senate Finance Committee Chairman Max Baucus (D-Mont.) is considering a "bank tax" and a tax hike on carried interest to "pay for" existing tax relief like the AMT patch, business extenders, and some of the 2001/2003 tax relief.

This should not come as a surprise to anyone.  Congressional Democrats have routinely raised permanent new taxes just to "pay for" one- or two-year extensions of existing tax relief.  Permanent tax increases year after year to pay for the same, existing tax rules is a recipe for higher and higher taxes over time.

On the merits of these two provisions:

  • Imposing a bank tax is particularly-foolish.  It's indiscriminate (i.e., not related to any prior bailouts received or paid back).  It ignores the fact that financial firms don't have to be located in the United States.  Finally, it pretends that every American doesn't have a huge stake in the health of the financial sector (e.g. getting a mortgage, saving for retirement, etc.)
  • Raising the capital gains tax rate on some capital gains earned by investment partnership managers is counter-productive.  The limited partners (for whom the managers invest the money) will simply be asked to take a lower share of the profits in order to make the managing partner whole on an after-tax basis.  The manager won't pay the money at all–the charities, universities, and other foundations will bear the burden in the form of higher fees and lower returns.