President Barack Obama’s near $4 trillion budget proposal for 2016 also includes a hefty new tax on large financial companies that could weigh on sector stocks and related exchange traded funds.

The financial sector has been underperforming the broader market. Over the past year, the Financial Select Sector SPDR (NYSEArca: XLF) rose 11.1%, Vanguard Financials ETF (NYSEArca: VFH) gained 11.2% or iShares U.S. Financials ETF (NYSEArca: IYF) returned 11.8% while the SPDR S&P 500 ETF (NYSEArca: SPY) increased 14.1%. Any further burden on financials will continue to drag the sector down. [A Tepid Year for Banks, Financial ETFs]

President Obama has proposed a new few 7 basis point fee on financial firms with over $50 billion in assets to discourage riskier behavior, such as excessive leverage, or borrowing, by taxing the liabilities of about 100 large financial firms, including banks, asset managers and broker-dealers, among others, reports Ryan Tracy for the Wall Street Journal.

“Even with the end of ’too big to fail,’ excessive leverage still creates risks for the broader economy,” the White House said in its proposed budget. “The fee is intended to discourage excessive risk-taking by financial firms, who were key contributors to the recent financial crisis.”

While the Obama administration has proposed a larger tax on banks in each of his budgets since 2010, the current proposal is much broader, covering insurance companies, exchanges, asset managers, broker-dealers, specialty finance corporations, financial affiliates of nonfinancial corporations, and U.S. subsidiaries of international firms.

The proposal will burden the financial sector with added costs, but it may not pass Congressional scrutiny, especially with big-industry, tax-adverse Republicans controlling both the House of Representatives and Senate. Moreover, a similar but more narrowly defined tax-reform plan was also opposed by many Republicans last year.

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