Banks Weigh Challenge of Proposed Tax

President Barack Obama’s proposal to levy a tax on big banks is drawing enough concern that the banks’ chief lobbying group is quietly planning a court challenge claiming such a tax would be unconstitutional.

Meanwhile, Democrats appear ready to ride the populism of the proposed tax in coming political contests.

The New York Times, citing unnamed sources, reports the Securities Industry and Financial Markets Association sent an email to heads of top banks’ legal departments last week arguing that the proposed tax could be unconstitutional because it singles the banks out unfairly. The lobbying group had hired Carter G. Phillips of Sidley Austin, a veteran Supreme Court litigator, to study whether the proposal could be challenged.

Obama, when he introduced the proposed tax meant to generate up to $117 billion to cover losses from the bank bailout program last week, urged banks not to lobby against it.

While the banks weigh their option, Democrats are using the proposed tax to portray themselves as populists amidst a tide of rising anger at record bonuses bankers plan to pay themselves a year after taxpayers had to ride to their rescue.

That strategy, the Wall Street Journal reports, was on display over the weekend as Obama campaigned for Martha Coakley in her bid to win Edward Kennedy’s Massachusetts U.S. Senate seat. Coakley has had an unexpectedly hard time in Democratic Massachusetts against her Republican rival, Scott Brown. Brown has traded on worries over Obama’s health care plan and is proving to be a tough opponent.

But Democrats are using the proposed tax to portray Brown as standing with Wall Street.