Calculation of the appropriate level is impossible.
Garbarino ’15 [Carlo and Giulio Allevato; Summer 2015; Professor of Law at the Universita Bocconi, Grotius Research Scholar at the University of Michigan Law School, Hauser Global Visiting Faculty at the NYU Law School, Visiting Professor of Law at the University of Michigan Law School, Visiting Professor of Law at the University of Florida School of Law, Visiting Professor at the University of San Paulo, Visiting Scholar at the University of Michigan Law School, Visiting Professor at Sorbonne University, Paris, Visiting Scholar at Yale Law School; Assistant Professor of Tax Law at the SDA Bocconi School of Management, Ernst Mach Scholar at the Institute for Austrian and International Tax Law, Vienna University of Economics and Business, Ph.D. from the Universita Bocconi, International Tax, LL.M. from the University of Michigan Law School; Michigan Journal of International Law, “The Global Architecture of Financial Regulatory Taxes,” vol. 36]
An excess-profits tax on financial firms is, in some ways, a policy option that can be used also for purposes other than those indicated above. In the past, excess-profits taxes have been used by the U.S. government to target specific industries, such as oil companies, 78 but they and now can be applied to the financial industry as well. 79 Such a tax could be levied on the profits of financial companies that are above a normal rate of return for the industry, defined as the compounded amount of interest accrued on debt and a notional return of equity. 80
The main issue in designing an excess-profits tax for the financial sector is the definition of the notional rate of return of equity. This implies a quite complex comparability analysis similar to that deployed in transfer pricing and aimed at finding financial institutions with identical or nearly identical features in terms of size, fees charged, and the type, amount, and frequency of transactions. This in turn requires significant administrative effort and a high compliance burden, which may affect the feasibility of the tax.