The Securities Industry & Financial Markets Association, Wall Street's main lobbying group, has hired top Supreme Court litigator Carter G. Phillips of Sidley Austin to look into possibly mounting a legal battle against the President's proposed bank tax. They might fight it on the grounds that it would be unconstitutional because it singles out big banks, ABC News has confirmed with sources familiar with the matter.
Last week – when the President unveiled his proposal – executives at the lobbying group sent an e-mail to the legal departments of Wall Street's biggest firms warning that the bank tax could be unconstitutional, the sources said.
"Using the tax code as a punitive measure, besides being bad policy, creates Constitutional problems," Scott Talbott, chief lobbyist for the Financial Services Roundtable in Washington, told ABC News Monday.
Talbott called the President's proposal a "bill of attainder," an act that declares a group guilty and punishes them without first granting them a trial.
The President's bank tax – known as the "Financial Crisis Responsibility Fee" – will be included in the President's 2011 budget proposal. It would tax about 50 of Wall Street's biggest firms with assets of $50 billion or more. The administration hopes it would bring about $90 billion into government coffers over the next decade.
"We want our money back and we're going to get it," the President said last Thursday at the White House.
The recouped money would then go towards reducing around $120 billion in expected taxpayer losses from the $700 billion Troubled Asset Relief Program, or TARP.
"We oppose this very targeted and punitive tax, especially when it affects firms that have either already repaid, with interest, their TARP funds or never took TARP funds in the first place," said Andrew DeSouza, spokesman for the Securities Industry & Financial Markets Association.
A Treasury spokesman adamantly rejected the idea that the bank tax could be ruled unconstitutional.
"Any assertion that this fee is unconstitutional is totally without merit," Treasury spokesman Andrew Williams told ABC News Monday.
Wall St. Mulls Challenge to Obama's Bank Tax
Since the specific language of the President's proposal will not be released until the budget is unveiled, the lobbying group at this point has not decided on a specific course of action.
"There is not even legislative language and thus it is premature to speculate on any potential actions beyond opposing the proposal itself as both punitive and counterproductive to increasing lending to support the economic recovery," DeSouza said.
Last Thursday the President's Treasury Secretary, Tim Geithner, disputed the argument that the bank tax was a punishment for Wall Street.
"This policy is not designed to punish," Geithner said in an interview on CNBC. "It's designed to meet the simple, practical, legal obligation, and we're doing it in a way, I think, it makes economic sense because we're doing it in a way that is, in effect, a tax on leverage, it's a tax on risk in some ways, and it's borne by the people that benefited most from the crisis. That seems fair."
The proposed tax, though, would not apply to government-backed mortgage giants Fannie Mae and Freddie Mac, nor would it apply to bailed-out automakers General Motors and Chrysler, a fact that has some critics crying foul.
"It is very unlikely that the government is going to be able to get back its money from GM and Chrysler and if it levies a tax on them it makes it more difficult for them to get its money back," said Peter Morici, professor at the University of Maryland's Smith School of Business.
"This tax," he said, "makes no sense at all."
Last Thursday, in his remarks announcing the proposed tax, President Obama warned Wall Street not to fight it.
"Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I'd suggest you might want to consider simply meeting your responsibilities," President Obama said. "I'd urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives."
Wall St. Mulls Challenge to Obama's Bank Tax
But Wall Street was already voicing its opposition to the proposal even before the President outlined it.
"I think using tax policy to punish people is a bad idea," said JPMorgan Chase CEO Jamie Dimon.
Dimon cautioned that these taxes may ultimately be passed on to ordinary Americans.
"All businesses tend to pass their costs onto their customers," he said. "That's not abnormal."
Morici argues that Wall Street is really making much ado about nothing.
"The bankers are screaming about a death wound when the tax is merely a paper cut," he said, calling the tax "meaninglessly small."
"I don't think they've got much of a Supreme Court case because there are all kinds of examples of the government singling out firms by size," he said. "The corporate income tax does that. I don't think they've got a leg to stand on. But if you ask a lawyer if we've got a case here, he'll take your money."