Taxing the financial sector

David Leonhardt's article was a nice summary of the options facing the administration as it tries to rein in the financial sector. This section caught my eye:

A Wall Street Journal analysis found that if one set of stricter leverage standards had been in place during the five years before the crisis, it would have reduced the biggest firms’ profitability by almost 25 percent.

How much is 25 percent? Using data from FRED® on corporate profits and non-financial corporate profits we can approximate how much this would be. Assume that financial sector profits are the difference between total and non-financial sector. Assume that a 25 percent tax is imposed on these after tax numbers. Sum up the amount received from these additional taxes. (Ignore the time value of money for simplicity - or assume that the discount rate is 0.)

The results show that if we taxed the financial sector an additional 25 percent beginning in 2003 through 2007, we would have received over $2 trillion dollars. Assume that the bailout costs according to the article are $700 billion (TARP) and $787 billion (fiscal stimulus) which is about $1.5 trillion. These direct costs do not include the lower trend of GDP, unemployment and other dislocations caused by the crisis. So, does the tax pass the cost-benefit test?

Corporate Profits and taxes in billions of dollars

					Cumulative Taxes
DATE	Total	Non-financial	Financial	25% tax	from 1/1/2003
01/01/03	627.10	283.40	343.70	85.93
04/01/03	621.20	266.90	354.30	88.58
07/01/03	663.20	296.10	367.10	91.78
10/01/03	727.40	325.50	401.90	100.48
01/01/04	859.70	413.30	446.40	111.60
04/01/04	911.50	475.30	436.20	109.05
07/01/04	960.50	502.70	457.80	114.45
10/01/04	961.50	509.00	452.50	113.13
01/01/05	1,176.00	634.80	541.20	135.30
04/01/05	1,196.00	678.70	517.30	129.33
07/01/05	1,238.30	664.70	573.60	143.40
10/01/05	1,300.80	763.00	537.80	134.45
01/01/06	1,354.60	807.70	546.90	136.73
04/01/06	1,344.70	787.90	556.80	139.20
07/01/06	1,368.50	850.00	518.50	129.63
10/01/06	1,330.00	795.50	534.50	133.63
01/01/07	1,278.10	767.90	510.20	127.55
04/01/07	1,342.10	785.90	556.20	139.05
07/01/07	1,318.20	725.20	593.00	148.25	2,311.48
10/01/07	1,353.00	759.30	593.70	148.43	2,373.98
01/01/08	1,297.60	595.70	701.90	175.48	2,460.88
04/01/08	1,276.00	632.50	643.50	160.88	2,529.98
07/01/08	1,271.90	627.50	644.40	161.10	2,590.60
10/01/08	836.80	419.70	417.10	104.28	2,583.28
01/01/09	976.10	478.90	497.20	124.30	2,598.53
04/01/09	1,031.10	538.20	492.90	123.23	2,607.30
07/01/09	1,173.90	582.40	591.50	147.88	2,642.05
10/01/09	1,270.10	650.70	619.40	154.85	2,661.60