UPDATE 1-US Senate tax-writer cautious on bank tax

Tue Apr 20, 2010 12:27pm EDT

* Baucus: impact of tax on consumers needs study

* Inspector general says recoupment poses hard question (Adds comments from Treasury inspector general, byline)

By Kim Dixon

WASHINGTON, April 20 (Reuters) - President Barack Obama's plan to tax financial institutions to recoup funds spent during the government's bailout of financial firms received tepid enthusiasm from the top tax writer in the U.S. Senate.

Senator Max Baucus, the conservative-leaning Democrat who heads the Senate Finance Committee said on Tuesday he will hold a series of hearings to examine the plan.

But he also said good news on the government's recouping of its bailout investments may cast doubt on the need for the funds Obama wants to raise.

"We need to learn whether banks will pass it on to consumers, and how it might affect lending to small businesses," Baucus said.

Obama in January proposed a 0.15 percent tax on liabilities of big financial institutions to deter risk-taking that contributed to the economic free fall in 2008. The government spent billions of dollars to prop up Citigroup (C.N) , American International Group Inc (AIG.N) and others.

The special inspector general for the Troubled Asset Relief Program, Neil Barofsky, told the panel about progress made by companies getting TARP funds.

Baucus said the news was encouraging and "raises the question... of how much do we need to pay back."

Senator Charles Grassley, the ranking Republican on the panel who is close to Baucus, asked whether it would be fair to tax banks who repaid TARP to make up for losses sustained by General Motors [GM.UL] and AIG.

Barofsky said it was a "difficult policy question."

Baucus said it was a question he would like to explore in hearings.

Obama's bank tax got strong backing from New York Democrat Charles Schumer, who called for including the bank tax in the broad financial overhaul legislation moving through the Senate.

Baucus said the idea has been discussed, but no decision has been made. (Reporting by Kim Dixon Additional reporting by Andy Sullivan; Editing by Tim Dobbyn)