Debate on Tax Revision Takes Heat off Banks

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Debate on Tax Revision Takes Heat Off Banks

THERE IS GOOD NEWS AND bad news for bankers in the tax-revision proposals coming out of Washington. Every day, as the Senate and House deliberate on tax changes, bankers watch what is happening to taxation of municipal income, tax deductibility of consumer interest expense, changes in the status of individual retirement accounts, and taxation of bank loan-loss reserves.

But there's one point many bankers may not have thought about. It is that the very fact that Congress may make substantial changes in our tax laws in this session means the heat will be taken away from consideration of other legislation that might be far more adverse to banking interests.

Maybe this point can be elaborated upon by repeating a conversation that I had with a very acute lawmaker, head of the banking committee in one house of his state's legislature.

This is the gist of his off-the-record remarks:

"If the year goes on and no tax legislation comes out, then Congress will be getting close to election time and will have little to show for the year's work. At such a time, any lawmaking body can always generate public support and a feeling that it is doing a good job if it passes new legislation that hits the banks."

Already we have seen proposals to limit what a bank can charge in consumer loan interest.

And there are numerous other areas where so-called consumerist legislation has been proposed that make it look as if the lawmakers are attending to the public's rights and correcting the "abuses" of the banking industry.

What is so ironical in all this is that, in private, most lawmakers recognize and willingly admit that the proposed antibank legislation is fluff and really does little good for the consumer.

Lowering interest rate ceilings on consumer loans from 20% to 15%, for example, will save the average person about $4 on a two-month $500 outstanding. The real cost to a bank in handling consumer credit is the expense of the operation rather than the cost of the money lent, because average balances outstanding are small and operating costs are high.

Thus banks will just turn to fees for services or discourage business that is not profitable under low rate ceilings. The public could well be denied a service that it truly wants and needs because of legislation intended to save the credit cardholder an insignificant amount.

But it looks good. Banks are felt to be "fat cats" that have tons of money in the vault or mattress, all taken from an unprotected public. …