Slapping taxes on wealthy Americans and Sunbelt states to cover the savings and loan bailout would be unfair, a financial industry consultant said Wednesday.
But consumer advocates and members of Congress disagreed, saying people who had profited from government policies that caused the crisis bear a disproportionate responsibility for fixing the problem.Bert Ely, a conservative advocate of federal deposit insurance reform, told a task force established by the House Banking Committee that all taxpayers should shoulder the cleanup burden.
The thrift crisis resulted from defects in the insurance program, which benefits the entire nation by keeping the banking system afloat, he said.
"Attempting to impose this loss, particularly in a punitive manner, on select groups of taxpayers would be unfair and counterproductive for the economy," Ely said.
"Our fellow citizens can smell that something is rotten in the state of America," said Rep. Joseph Kennedy II, D-Mass. "They demand that they not be stuck paying for fiascos they neither caused nor profited from."
The task force is studying who should pay the hundreds of millions of dollars needed to rescue the ailing thrift industry.
Kennedy testified in favor of legislation he introduced that would levy a 7.5 percent surtax on unearned income, such as interest and dividends, of people earning more than $100,000 a year.
Corporations earning more than $75,000 a year would pay a 5 percent surtax. And a provision that forgives taxes on appreciated capital gains at death would be abolished.
Rep. Howard Wolpe, D-Mich., asked for support of a bill he introduced as chairman of a caucus representing 18 Northeastern and Midwestern states. Noting that many of the failed thrifts are state-chartered, he said carelessness and lax regulation by state governments were a little-noticed cause of the S&L crisis.
His bill would establish a formula for determining which states caused an "excessive" share of the problem. The governments of those states would be required to pay into a special fund for the thrifts they charter to remain eligible for federal deposit insurance.
Texas would pay the biggest bill: $2.8 billion. Thrifts in that state account for 72 percent of the losses, but Texas currently stands to pay only 6 percent of the cleanup costs, a study by the Northeast-Midwest Coalition says.
"Texas encouraged a massive construction boom and, by abusing the federal deposit insurance system, has levied a tax on our citizens to pay for it," Wolpe said. "If that isn't a transfer of wealth, I don't know what is."
Ely, however, said the regional disparity had been "vastly overstated." For example, although Texas benefited from local construction projects financed by S&Ls, many of the materials came from outside the region.
Task force chairman Rep. Bruce Vento, D-Minn., also voiced uneasiness about punishing Texas.
"Before we get into a new civil war, I want to make sure we do something that's workable," Vento said.
Meanwhile, the Congressional Budget Office released a study of deposit insurance reform options that appeared to support the idea of broad-based taxpayer responsibility for the bailout.
Deposit insurance funds "were never expected to cover catastrophes, and the (thrift) collapse represents an extraordinary or catastrophic situation," said Banking Committee Chairman Henry Gonzalez, D-Texas, who requested the study.