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A tax by any other name

The New York Times is reporting that a move is afoot among the banks to charge a fee for debit cards. Right now, it appears that U.S. Bank is going to lead the way. Economic dogma would lead one to believe that other banks, in order to compete, would try to take U.S. Bank’s customers by touting their fee free debit cards, but that’s not the way things actually work. The other banks will institute fees and, somehow, justify it as a way to compete with U.S. Bank.

This is not about recovering costs, of course. In fact, a little thought would lead any rational person to conclude that bank fees for processing transactions have been either instituted or raised as the actual cost of processing transactions has gone down. Remember back in the days when you needed to actually go to a bank and withdraw your money from a real live person. That cost the customer nothing, and still costs nothing. Electronic transactions are cheap by comparison with the cost of paying people to process transactions, and all-electronic transactions cost less than processing checks. Yet, the less the banks must pay, the more the banks charge, and let’s not even get in to ATM charges. This is all about maintaining bloated profits. And why? Because they can:

The executives hinted that to recapture revenue that most likely will be lost from recent legislative changes and proposals, the bank might change its checking account pricing, reduce rewards and “perhaps” add a debit card fee, among other moves.

Translation: We have been stopped from making excessive profits on certain portions of our business, so we will seek to make them elsewhere. If the debit charge is, as I suspect it will be, a per transaction charge, then it will be the equivalent of a sales tax. We are already paying such a hidden tax on every credit charge, and if I’m not mistaken, a lower charge on debit transactions. Ask any merchant how much tribute they have to pay to the credit card company on every transaction, so a fee on debit cards would be on top of that. The customer doesn’t see the current charges on the receipt or on a statement, but they pay it.

Naturally, this gouging will go unnoticed and un-protested. The supremely ignorant people of the United States would rather protest against any increase in, lets say, an actual sales tax, the proceeds of which go to such unnecessary things as schools, roads, police, etc., rather than to useful things like banker’s bonuses.

It would be interesting to find out the extent to which the non-financial sector of our economy is being stifled by the fact that the banking industry is in a position to drain off so much money without providing anything of value in return.

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