The Dodd-Frank Overreach
The arbitrary and lawless $19 billion tax added in the dead of night to the financial regulation bill in conference could doom it.
5:42 PM, Jun 28, 2010 • By JOHN MCCORMACK
Chris Dodd and Barney Frank are experienced wheeler-dealers and savvy backroom players, so it’s no surprise there’s a lot of clever wheeling and dealing in the financial regulation bill they pushed through conference committee last week. But around 3:00 a.m. Friday morning, they may have made a mistake.
Leave aside the fact this would be a tax increase on investors, passed on through banks and hedge funds. Leave aside that a lack of support caused the removal from previous versions of the bill a liquidation fund, of which this seems a bastard cousin snuck back in. Leave aside the fact this would move productive capital out of the financial system and into the hands of the federal government. Leave aside that the FSOC would have extensive "information gathering" powers to require a financial company or hedge fund to open up its books to regulators so they can determine a proper assessment figure.
What’s amazing about this "assessment" is how arbitrary it will be, and how contrary it is to any recognizable principle of the rule of law in taxation. No rate for the tax is specified, as with a normal tax. No principle of equal treatment for similar entities is there to limit the Council’s arbitrary discretion. Rather, the Council is to review a bunch of vague criteria, including “the extent of the company’s leverage,” “the extent and nature of the company’s transactions and relationships with other financial companies,” “the nature, scope and mix of the company’s activities,” culminating in #13, “such other risk-related factors as the Council may determine to be appropriate.” The Council will weigh these criteria as it pleases, hit upon a figure for each firm, and simply impose it as an “assessment” on that firm.
So the Democrats may not have the votes in the Senate to end debate on the conference report this week. They may have to reconvene the conference and pull the tax--which would probably and unfortunately save the rest of the bill, but would nonetheless be a victory for the rule of law.