Obama Plans to Raise $120 Billion From Banking Fees (Update4)

By Hans Nichols and Ryan Donmoyer

Jan. 12 (Bloomberg) -- President Barack Obama plans to raise as much as $120 billion over 10 years through a fee on financial institutions to help recoup losses from the Troubled Asset Relief Program and reduce the federal deficit, according to administration officials.

The White House hasn’t settled on the final structure of the fee and how to target the big banks that have returned to profitability, said the official, who requested anonymity.

The plan is to have revenue from the fee dedicated to deficit reduction and to cover the $120 billion the Treasury Department estimates it will lose from TARP. Details will be contained in the fiscal 2011 budget that Obama will submit to Congress next month, the official said.

The government’s $700 billion rescue plan contributed to a record $1.4 trillion deficit last year.

Tax experts, who discussed the possibilities before the president’s plan was disclosed, say all the administration’s options, which include an income surtax, an excise tax, or a fee pegged on the value of assets or some other measure, are likely to be so porous that financial institutions would be able to sidestep most of them.

“Any new tax is always more complicated than the designers anticipated,â€