APT: A Tiny, Flat Transaction Tax - Far Better for the Nation than the National Sales Tax

www.apttax.com ^ | 11/1/04 | Edgar L Feige, PhD

[zeugma]

This is an interesting propsal. I've seen this before, and it also dovetails nicely with the UN proposals to tax every single transaction in a similar manner.

The main reason I don't like it is that it is actually too transparent. People won't see the money coming out. I think the entire system of withholding that was mandated during the Nixon administration is one of the worse aspects of the current system. If you had to personally write that check each month, or at the end of the year, you'd be a lot more congnisant of exactly how much you are being raped by our masters in washington.

If this were implemented, people would become even more disconnected from the taxes they pay than they are now. I just can't believe this is a good idea. It is especially dangerous because the actual rate of taxation is so small. People just won't see the dangers when congresscritters propose the inevitable .5% per transaction increases. It would give the bastards yet another way to hide their rapacious ways.

[CindyDawg]

So each time you buy something you will have to show an account number to sort the tax? No thanks. The government doesn't need to know where I spend my money.

[umgud]

Here comes the transaction cops........

[APT Project Director]

Based on several replies there is always skepticism about a new revolutionary idea. You must approach APT QUANTITATIVELY because albeit every transaction is taxed BUT the total bill is FAR less for the individual than NST or the current system. The "evils" of centralization and cashlessness are already fully upon us (cash is only 2% of the value of all transactions and is certainly allowable under APT). The security markets would flourish because of all the money people would be trying to invest. Capital formation would be much easier. When you approach APT you MUST always be cognizant of the numbers and not simply the qualitative aspects. NST hates the number discussions -- it's hard to figure out the rate required until after you're sold the concept -- then comes the killer let down, 31.5% here in TX. What it all boils down to is -- since no freedom is being sacrificed -- is any argument reason for everyone to continue to pay 70 TIMES more tax than they have to.

[CindyDawg]

:')

[endthematrix]

Granted I never thought of the value of stock when factoring in a transaction tax. However the percentages are very small in ratio, the benefits of investment will out weigh the tax. I'm in no way an advocate of this.

[c-five]

So if you buy a capital item like a building or a locomotive or even an automobile, that is built up of many components and subassemlies, minor and major, fabricated by various providers (or divisions?) you pay transaction tax on every bolt, brick, wire or semiconductor, the labor to make it, the payroll contractor of each provider, etc. and the labor to make them into, say, an alternator. Then you pay a transaction tax on each part, unit of labor, and subcontracted service again, when an assembler acquires the alternator and puts it on an engine. Then you pay a tax on all of that again, when you ship the engine to a final assember to make a vehicle. So now you've paid a tax on every bolt at least three times, plus a tax on the tax and a tax on the tax on the tax assessed on the original component. Voila, 0.24% turns out to be the same big bucks we pay now. It's all just hidden from view. The legislature can raise taxes anytime it wants, and no one notices. Just the price of every good and service goes up. No accountability. Sweet.

[chaosagent]

"It would seem to me that placing such a tax on financial transaction such as stock purchases and sales would quickly bring the financial markets to a grinding halt."

"Investors would simply stop, and I mean STOP as in totally and quickly, trading securities on US stock exchanges. Capital formation would CEASE, and jobs would disappear QUICKLY as investment would halt."

"Unless I'm missing something."

I'm not sure why you think this would happen.

If someone buys $100,000 worth of stock, they pay a $280 transaction fee.

They pay no other taxes of ANY kind, ever.

A family with a income of $100,000 pays $560 year in tax, as opposed to the $30,000 - $50,000 they pay now.

If, as a conservative you believe that lowering taxes INCREASES investments, then this is the ultimate expression of that idea.

Think about it. The avcrage family would pay only a few hundred dollars in taxes, federal, state, local, Social Security, Medicare, and sales tax. That's it.

So what do you think they're going to do with the thousands to tens of thousands of dollars they will now have left to spend.

[Sarastro]

First: your handle sounds like you're connected with this project, and you just signed up the day you posted this. Shilling for your "product" on Free Republic -- if that's what you're doing -- is unseemly.

Second: the idea is crackpot.

A transaction tax would create friction in the mobility of capital, thus adversely affecting the long-term efficiency of our economy, which depends strongly on moving capital to the highest and best opportunities.

Also, transactions -- thus this proposed tax -- could be avoided by corporate mergers. This would create artificial incentives for vertical integration and reduce incentives to outsource, thus further reducing economic efficiency.

You admit this in your premise when you assume a 50% reduction in transactions. This would be disastrous to our economy.

[nj26]

"It would seem to me that placing such a tax on financial transaction such as stock purchases and sales would quickly bring the financial markets to a grinding halt."

Agreed. This would kill Wall Street, and shift most trading activity to offshore markets. A lot of trading is done for very thin spreads, as well, and just wouldn't occur (i.e. it would no longer be profitable) with this tax.

But, if anybody thinks some federal bureacrats are going to outsmart Goldman Sachs or Morgan Stanley, and manage to place the majority of the tax burden on Wall Street firms... well I'm a little dubious.

[Dick Bachert]

The printing money scheme has been tried (most conspicuously in the Weimar Republic in Germany)and the resultant inflation was so horrendous that workers were paid twice a day then HURLED the Deutschmarks out the window of the factory to their waiting wives so they could scurry to the local shops to BUY what they needed before the shopkeepers raised prices (which they did several times a day).

The current income tax is a solution to that problem as it allows the Fed to vacuum the excess fednotes from the system BEFORE inflation becomes so noticable that even the dullest among us can really get a fix on what's going on here.

Oh yes, one more thing: THERE IS NO MORE "MONEY" CIRCULATING HERE.

[ancient_geezer]

BUT the total bill is FAR less for the individual than NST or the current system.

Show us, it to be revenue neutral, the average impact of the current system as far as tax dollars taken out of the econommy on the family in regards family income is well documented.

The costs imposed by that system on business are less well understood, but are considerable in direct compliance costs, production disincentives, evasion and avoidence costs, ... and deadweight costs on the system arising from foregone trades.

What are these costs in the APT?

How do they reflect in loss of asset value, wages, prices of goods and services, price paid for financial & equity investment and in the burdens on shorter term trading in all markets?

How will this all impact US GDP, and ultimately the standard of living of the American Family?

And most importantly how does the electorate determine in a personal way the cost of government on his life that they may hold government accountable to cost efficiency in relation to their perceived benefit derived from government?

[APT Project Director]

With APT you have to stop and do the math. The answer to will a prescription drug bought by a poor person be taxed - the answer is YES - how horrible. But the $70 purchase will be taxed about 18 CENTS and NO FICA will be taken from his/her paycheck. If we can get the states to agree on a distribution system there would be no state sales tax and the tax on $70 would rise to 21 CENTS. If the nasty drugstore passes its share of the tax on the the customer it would be 36 CENTS (18 x 2). If cash were used, the store would pass their share on to the customer because they would deposit cash in the bank but there would be no tax on the customers side for the cash -- one side of a cash transaction is 44 CENTS. That's about every scenario and none are more than $1.

The no exemptions, no deductions policy recommended is designed to take a big bite out of outside influence on politicians.

[CindyDawg]

Yep, and when I cash my check I want no 50's or 100's since most places don't want to make change.

[chaosagent]

"So each time you buy something you will have to show an account number to sort the tax? No thanks. The government doesn't need to know where I spend my money."

There is no account number, just like there is no account number when you pay sales tax for a purchase.

But, instead of paying $8.25 sales tax for a $100 purchase, you would pay only 28 cents.

They don't care who you are or what you're buying.

[dpwiener]

This is a terrible idea. Transactions of all kinds should be as frictionless as possible to quickly eliminate distortions and to disseminate the information provided by the "invisible hand" of a free market economy. This would do just the opposite, by generating a totally new set of distortions, reducing liquidity, and creating other unanticipated and unintended consequences.

Of course our existing taxes also cause similar problems, but there's no reason to expect that this proposal will solve more problems than it creates. And that's even if the proposal were adopted exactly as stated, eliminating other taxes in the process. The much more likely scenario is that this would merely be added on to the existing tax structure, and would at best only temporarily reduce (but not totally get rid of) other taxes.

And the idea that the transaction fee would be so small as to not be a major burden is laughable. It might start out with that intention (just as the income tax started out as a very small percentage) but it would grow inexorably over time.

There is no good solution to taxation except to continually reduce the total tax burden along with the size and power of government. Anything else is just rearranging deck chairs on the Titanic in an attempt to counterbalance the flooding.

[ancient_geezer]

If we can get the states to agree on a distribution system

Are states then to give up their soverignty over how they collect their own revenues?

You do realise that this is something that cannot be imposed upon states by federal government due to the lack of Constitutional authority in this matter.

According to aggregate figures, in relation to gross family income, a tax that covers both state and federal government would be on the order of around 33%+ revenue neutral to 2000 taxlaw.

Unfortunately the Bush tax cuts have not been made permanent, so that is where we stand, at present

[APT Project Director]

John, your post about the 1% deducts is pretty close but 1% is too much -- it only needs to be 0.25% per side of every transaction. The paycheck example you mentioned would be $2.50 per $1000 for your employer when his/your paycheck clears his account and $2.50 per $1000 off your account when you deposit the check. Thank you for appreciating this great idea. As you read the rest of these posts describing horrendous results ask yourself - would an internationally known Professor of Economics not have considered these thing before putting his name on the line? and finally, does this or that argument mean that we should all continue to pay 70 TIMES more tax than we have to?

[Doctor Stochastic]

This tax scheme would tax internally produced items going into a car differently from those bought from other companies. Thus Delphi would need to become Delco again. It really screws up the valuation of goods. The cost of an item depends on its provenance.

[Remember_Salamis]

What about the following:

1. Repeal Federal Taxes
2. Repeal the Federal Reserve's support to banks
3. Print a similar amount of money to fund the federal covernment
4. As a result, inflation would not be any higher than it is now. In fact, it may be lower because there's likely to be larger produvtivity gains, counteracting inflation.