While the Republican tax bill unveiled Thursday is undoubtedly business-friendly, there is one set of American companies that come in for a new and costly tax: the big banks.
Under the GOP tax plan, banks with more than $50 billion in assets will no longer be allowed a deduction for the premiums they pay to the Federal Deposit Insurance Corp. Smaller banks will still get to employ the deduction.
The loss of this deduction will penalize banks for their size. Large and complex banks already pay higher rates for their FDIC insurance. The Dodd-Frank Act shifted the base for assessing FDIC assessments from total deposits to new measures that captures how leveraged the banks are. Under this measure, FDIC assessments are based on a bank’s total assets less its capital.
The loss of the deduction will eat into the bottom line of the biggest banks, according to Wall Street analysts. Charles Peabody of Compass Point Research & Trading estimates that the deduction could shave one percent to two percent off earnings per share at some of the biggest banks, according to the Wall Street Journal.
The change may help even the playing field a bit for the smaller banks, which operate at several disadvantages to the biggest firms. By preserving the deduction for smaller banks, the bill could improve their bottoms lines relative to their bigger rivals.
The loss of the deduction appears to reflect the rising populist sentiment in the Republican party.
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