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The worst part about the proposal is that at the end of the day it’s going to be bank consumers who wind up paying the tax. Banks will pass the tax along.

But there are many more problems with this absurd bank-tax-hike proposal. Think of this: The U.S. government bailed the banks out with TARP. Then the banks repaid TARP last year, including the stock warrants that provided a handsome taxpayer profit from the banks. And now the government wants to tax them? In other words, help the banks get healthy, and then punish them? I don’t understand it.

And here’s yet another ridiculous part of this story: The largest banks that de-TARPed, and are regaining their health, are now, with this tax, supposed to cover the government-owned failures like GM, GMAC, AIG, and Fannie and Freddie, which are running up huge deficits because they may be on the taxpayer dole in perpetuity. In other words, the healthy banks that made good decisions and paid down TARP are now getting taxed so that the government can finance the bad actors. This makes no sense at all.

The tax proposal, which would require congressional approval, is meant to make a splash, demonstrating to the public that the administration is now focused on reforming the financial industry after more than a year of bailout efforts. The official, who spoke with reporters before the president's announcement on condition of anonymity, said that large firms were reaping renewed profit from a rescue intended to help the broader economy and that the public deserved a larger share of the money.

…. The nation's largest banks are expected to report large annual profits over the next week, along with plans to set aside billions of dollars for employee bonuses.

"When you try to value the degree of benefit that they received from this exceptional government assistance, which was not aimed at helping specific companies but aimed at helping the economy at large, this is essentially the least they could do," the official said.

Industry executives are warning that hitting banks will hurt the broader economy because firms would seek to impose the cost of any tax on customers.

"Using tax policy to punish people is a bad idea," Jamie Dimon, the chief executive of J.P. Morgan Chase, told reporters Wednesday after his testimony before the Financial Crisis Inquiry Commission. "All businesses tend to pass their costs on to customers."

But by imposing the tax on only the largest firms, government officials said, they hope to protect consumers. Firms that raised prices would give smaller rivals a competitive advantage, creating an incentive for companies instead to swallow the cost, potentially by reducing employee pay.

"It is in many ways offensive for those at our major financial institutions to suggest that they can today afford excessive, often outlandish bonuses for their top executives but cannot afford to make whole the taxpayers," the senior administration official said.

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