Conservatives: End TAG, TARP’s Subsidy to the Rich’s Bank Accounts

by John Berlau

While waxing on about how Democrats want a “balanced approach” to deficit reduction, including for sacrifice by “the rich,” Senate majority leader Harry Reid has apparently slated a Senate vote as early as this Monday afternoon that would throw both priorities out of balance.

The vote is on extending for another two years the Transaction Account Guarantee (TAG) program — unlimited government-guaranteed deposit insurance for non-interest bank and credit union accounts, over and above the $250,000 limit for all accounts. As I explained in National Review Online on Friday, bank lobbyists are now pressuring Congress to make this “temporary” program, enacted in late 2008 at the nadir of the financial crisis, more permanent.

In addition to the concerns it raises of added taxpayer liability should financial institutions fail, extending TAG is a regressive policy that will be harmful to growth. TAG subsidizes the richest Americans, as well as wealthy foreigners, incentivizing them to park their money in bank accounts rather than invest in job-creating new businesses.

And a TAG extension, coupled with the tax rate hikes that may go into effect next year, would really pour fuel on the proverbial fire by telling investors that the government will take more from them if their investment in a job-generating startup business is successful, but will provide an additional margin of safety if the money just sits in a bank vault!

This extension would be such a taxpayer rip-off and so detrimental to growth that even some banks and credit unions have come out against it, urging Congress instead to focus on regulatory relief. And so have 14 conservative and free-market scholars and leaders of organizations, including me, Phil Kerpen of American Commitment, Amy Ridenour of the National Center for Public Policy Research, and Peter Wallison of the American Enterprise Institute (his affiliation is listed for identification purposes only). Wallison, in a recent article in American Banker, laid out brilliantly how the $1.6 trillion in TAG-insured accounts actually creates more systemic risk rather than reducing it, and could spell disaster if inflation hits.

The letter first published here on National Review Online, is addressed to Reid and Senate Republican leader Mitch McConnell, is printed below. We hope that Republicans and more than a few Democrats will stand firm against what we call this “unprecedented, unproductive, and regressive bailout.”

Read the letter below:

Re: Stop TAG, TARP’s Bloated Big Brother Bank Bailout

Dear Majority Leader Reid and Republican Leader McConnell:

As conservative, libertarian, and free-market organizations concerned – as the vast majority of Americans are — about economic growth and  the government’s fiscal solvency, we are outraged on many levels that the Senate would even consider extending the Transaction Account Guarantee program, or TAG.

#more#TAG both places unlimited liability on taxpayers for bank and credit union deposits and subsidizes the ability of the wealthy to “park their money” in ways that are unproductive for the economy. It makes the government responsible for guaranteeing any bank account – no matter how large – so long as the financial institution doesn’t pay interest. 

If TAG expires, accounts will still be guaranteed up to $250,000. It is especially ironic that Congress is contemplating raising tax rates for those making above $250,000, and TAG further encourages the wealthy to sit on their money, rather than invest in job-creating new businesses. Many wealthy people will choose the security of a 100-percent guaranteed bank account rather than taking a risk with an entrepreneur.

We sympathize with banks and credit unions in their fight against the regulatory burdens they face from Dodd-Frank and other big-government mandates. We would point out that some banks and credit unions oppose extending TAG, and instead urge Congress to pass legislation with regulatory relief. We urge you to listen to these voices in the financial community, as well as the voices of the beleaguered American taxpayer, before extending this unprecedented, unproductive, and regressive bailout.


John Berlau

Senior Fellow for Finance and Access to Capital 
Competitive Enterprise Institute

Richard and Susan Falknor

Blue Ridge Forum

Phil Kerpen

American Commitment

Alex-St. James

Executive Director
Republican National Policy Committee

Eli Lehrer

R Street

Jim Martin

60 Plus Association

Lisa Miller

Tea Party WDC

Seton Motley

Less Government

Andrew F. Quinlan

Center for Freedom & Prosperity

Amy Ridenour

National Center for Public Policy Research

Pete Sepp

Executive Vice President
National Taxpayers Union

Lewis K. Uhler

National Tax Limitation Committee

Peter Wallison *

Arthur F. Burns Fellow in Financial Policy Studies
American Enterprise Institute

Tom Winter

Human Events

* Title for identification purposes only.

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