NEW YORK (CNNMoney.com) -- President Obama will propose a new tax on financial institutions Thursday to ensure that taxpayers who bailed out banks get paid back, according to a senior administration official.
The White House wants to raise as much as $120 billion through a new tax on banks to cover losses in the federal bailout program.
The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.
TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.
When the TARP bill was hastily debated, the provision was key to winning enough support from wary lawmakers to push the bill through Congress.
This new proposal to tax banks has been under discussion since August, a senior administration official said Tuesday.
The federal bailout program has always been a controversial topic, but news of executive bonuses now being awarded for banks' stellar performance in 2009 is throwing new fuel on populist anger.
Congress would still have to approve any proposed new tax.
Robert Gibbs, the White House press secretary, would not discuss on Monday how a possible bank fee would fit into Obama's fiscal year 2011. But Gibbs said it is the president's "goal" to ensure the "money that taxpayers put up will be paid back in full."
While most of the big banks have started paying back their TARP investments, the government still has a lot of money on the line and is likely to for years to come.
Last month, the Treasury estimated that the net cost of TARP to taxpayers would be $41.4 billion.
"There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM and Chrysler," Geithner told an oversight panel.
Yet, the financial industry tax under discussion could impact the entire financial industry, a prospect the banking industry opposes.
Although few details are available about the proposed fee, the administration official suggested banks would be required to pay, even if the losses were incurred by GM and Chrysler.
"Imposing new taxes on top of the increased regulatory costs will weaken the industry, just when the industry is helping lead the economic recovery," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group.
And it's still unclear what, if anything, can be done to prevent the fee from being passed to bank account holders.
U.S. Chamber of Commerce President Thomas Donohue said Tuesday he expected any new fee imposed would be passed on to consumers.
"If you don't pass it on to the consumer, than you're going to have smaller profits, and then if you have smaller profits, your stock goes down," Donohue said.
The total revenue collected from the tax would be no higher than $120 billion, since that is the highest conservative estimate of the cost of TARP, the senior administration official said. However, the Treasury Department expects the total loss number to shrink over the course of future years.
Ed Gilligan spent his entire 35-year career with American Express, starting as an intern ad rising to one of the highest executive posts at the bank. More
The U.S. economy lost ground in the first quarter, but it is already showing signs of life. More
Lyn Ulbricht, mother of Silk Road founder Ross Ulbricht, says he was sentenced to life to set an example. More
A generous patron left a $2,000 tip earlier this week at a D.C. restaurant. More