CBO study says banks won't bear the cost of new fees

This only comes as news to people who haven’t worked in the private sector, of course — which means the entirety of the Obama administration and most of the Democratic leadership in Congress.  It takes a CBO analysis for them to understand that increasing costs on businesses means increasing costs on their customers — or forcing them out of business altogether.  This time, the CBO explains the impact of raising fees on financial institutions to the clueless:

President Obama’s proposed fee on the country’s biggest banks receiving taxpayer bailout money would ultimately result in costs to the firms’ customers, employees, and investors, a non-partisan Congressional watchdog said today. …

But the Congressional Budget Office today warned that “the ultimate cost of a tax or fee is not necessarily borne by the entity that writes the check to the government.”

“The cost of the proposed fee would ultimately be borne to varying degrees by an institution’s customers, employees, and investors,” the CBO said today in a letter to Sen. Chuck Grassley.

“Customers would probably absorb some of the cost in the form of higher borrowing rates and other charges, although competition from financial institutions not subject to the fee would limit the extent to which the cost could be passed to borrowers. Employees might bear some of the cost by accepting some reduction in their compensation, including income from bonuses, if they did not have better employment opportunities available to them. Investors could bear some of the cost in the form of lower prices of their stock if the fee reduced the institution’s future profits.”

The availability of credit – already a problem for some consumers and businesses – could also be limited by the proposed fee, the CBO said.

Er, yeah.  In other words, water is wet, too.  This doesn’t even qualify as Econ 101; anyone not already knowing this would get tossed out of King Banaian’s excellent lectures at St. Cloud State University.

Let’s make sure we extrapolate this for everyone onto other public policies, while we’re at it:

  • Increasing the minimum wage forces businesses to pay more for labor.  Either they hire fewer people or they raise prices — which undermines the buying power of those who make the least amount of money.
  • A carbon tax or cap-and-trade bill will force energy producers to either raise prices to its customers or scale back power production, which will force businesses to either raise prices or cut back production, which will mean more cost or more scarcity for consumers — both of which are inflationary.
  • Higher fees on insurers, medical-device manufacturers, and other goods and services in the health-care industry mean higher prices for consumers in the form of increased premiums or in greater scarcity as suppliers fail to come to market.

Imposing higher costs on business means higher costs for consumers.  It means fewer jobs, less consumer choice, less innovation, and economic decline.  I’d be surprised if the CBO analysis itself doesn’t end with the word duh in the last sentence.