On Thursday, President Obama is expected to announce details of a plan to tax the financial industry as much as $120 billion over 10 years in order to recover the cost of the bailout. Industry professionals are not saying much, but undoubtedly they hate the whole idea.

And for good reason.

Goldman Sachs (GS), JP Morgan Chase (JPM), Morgan Stanley (MS) and other big banks have already repaid the federal funds they received under the government’s TARP program. Why, then, should the government try to recoup money that has already been repaid with interest?

In the immortal words of bank robber Willie Sutton, who responded to the question of why he robbed banks by saying, “Because that’s where the money is,” the federal government appears to be going after the big banks because that is still where the money is. Other firms that took TARP money, like American International Group (AIG), have no way of repaying, so there’s no point in the government going after them.

Although it’s not clear how the levy would be applied, one possibility appears to be that banks would pay the tax based on the value of the assets reported on the balance sheet. Another possibility is that the levy would be tied to a bank’s liabilities.

If the government chooses the first option, the tax will appear to be a penalty for good management. Politically, though, this has the advantage of appearing like a punishment for the banks being highly profitable in 2009 and paying big bonuses while the rest of the country suffers with 10% unemployment and stagnant wages. It’s good theatre.

Banks would fight this, but in the long run, it’s a better choice for them than basing the levy on liabilities. It would levy the tax in inverse proportion to liabilities, having the effect of making leverage more costly. If leverage requirements on financial instruments were raised, the thinking is that banks would be more careful with derivatives and other special instruments because they would have more skin in the game.

Many economists are promoting raising leverage requirements as a way to avoid a repeat of the financial meltdown that began last summer. At that time some of the mortgage-backed assets were leveraged as much as 90%.

So far Treasury Secretary Geithner has treated banks and bankers generously, but with a mid-term election just 10 months away, the political calculus has probably changed.

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