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

[APT Project Director]

AUTOMATED PAYMENT TRANSACTION (APT) TAX Taxation technology for the 21st century

Dr. Edgar L. Feige, Professor Emeritus of Economics from the University of Wisconsin-Madison and the originator of the APT Tax concept, has just produced new estimates suggesting that a broad-based transaction tax as low as six tenths of one percent could replace the entire Federal and State 2005 budget revenue requirements of the United States of America.

The APT concept is elegant in its simplicity - potentially replacing the entire federal and state tax system - including income, corporate profits, excise and estate taxes - in favor of a tiny tax on all transactions. The tax would be automatically deducted from special taxpayer accounts, linked by software to all accounts at financial institutions capable of making final payments to the government seamlessly in real-time. The APT tax therefore eliminates the need for individuals and firms to file income and information tax returns. This is estimated to save citizens and the government roughly $200 billion per year in administration, enforcement, evasion and compliance costs, roughly seven times the amount currently being spent on homeland security.

The APT tax seeks to maximize the goals of both the government and the people - collecting necessary revenue with the lowest possible tax rate. The difference between the APT tax and our current income tax, as well as the proposed consumption taxes, is simplicity, progressivity, and breadth-the APT tax allows for significantly lower rates spread more equally throughout the world of economic activity. The APT is a transaction tax, and as such, taxes every single transaction that occurs in the economy including fund transfers between accounts and transactions involving the exchange of bonds, securities and foreign exchange. Because the wealthy conduct a disproportionate share of these financial transactions, the tax is highly progressive despite its flat rate. Progressivity is achieved through the skewness of tax base itself rather than through the progressive income tax rate structure of the current system. The very small tax is "sliced" off each side of every transaction as it moves electronically through banks and all other qualifying financial institutions. The tax collection is orderly and transparent, the rules are simple and universal and apolitical. The APT system eliminates the entire present tax code. No more exemptions, no more deductions, no more special interest loopholes and no more tax returns.

Feige's 2005 projections of total debits of $881 Tril., and total transactions of $832 Tril. (based on the most recent 2002 Bank for International Settlements data) update the figures he used in his original paper, published in Economic Policy in 2000. Taking the average of these two estimates ($856 Tril.), he conservatively assumes that the replacement of the current tax system with a revenue neutral APT tax will reduce total transactions by 50%. The projected potential APT tax base for 2005 would then be $428 Tril., permitting a revenue neutral flat tax of .57 percent on all transactions or .28 percent on each (buyer and seller) transactor to replace projected 2005 Federal and State tax revenues.

The tax rates required for a "revenue neutral" tax are divided into three phases which are the result of a suggested implementation plan that would gradually replace virtually all Federal and State taxes. The projected tax rates are calculated conservatively, assuming that only 50% of the potential 2005 APT tax base is available, since the volume of total transactions is expected to fall with the introduction of the APT tax. To the extent that transactions decline less than is assumed in the current calculations, an even lower tax rate would be able to raise the requisite revenues. As individuals and businesses use their new found economic freedom, transactions naturally grow over time, suggesting that future tax rates could be even lower.

Utilizing 50% of the projected APT tax base for 2005 of $856 Tril., that is, $428 Tril, the estimated tax rates required to raise the revenues projected for 2005 budgets are as follows:

Phase I (Eliminate all Federal taxes other than SS and Medicare) Required revenue neutral target=$1.242 Tril: Required tax rate = 0.29% per transaction or 0.15% per transactor.

Phase II (Eliminate all Federal taxes including Social Security and Medicare "payroll" taxes) Required revenue neutral target = $2.036 Tril. Required tax rate = 0.48 % per transaction or 0.24% per transactor.

Phase III (Eliminate all Federal taxes including Social Security and Medicare "payroll" taxes and all State personal income; corporate profits and sales taxes) Required revenue neutral target = $2.436 Tril. Required tax rate = 0.57% per transaction or 0.28% per transactor.

The estimates above are based on 2005 revenue and transaction projections. Implementing the three phases will require several years and careful government management, especially the third phase. However, Dr. Feige has built in a safeguard for the APT Tax by calculating the required tax rate based on only half of the transactions that are actually observed.

Examples: Assuming full implementation of Phase three: 1. $100 restaurant bill would have a tax to the customer estimated to be 28 cents and the restaurant would pay 28 cents. 2. $50,000 family income deposited and spent or moved to savings results in $100,000 of transactions paying a total tax of $280 distributed over all the individual transactions as they occurred through the year. These amounts would be doubled if businesses fully shifted their tax burden to the consumer, but nowhere near the $15,000 to $20,000 the family would pay under the current federal and state systems.

It is now important to begin the process of planning the economic, legal, technical and administrative requirements necessary for a smooth and transparent transition from the current tax system to an APT system. The proposed, new collection system will be tested by computer simulation to capture all potential errors and omissions (new job for the IRS). Then, it will take several years to rollout, especially Phase III involving central collection and distribution to the States. A national commitment to this revolutionary, fair, automatic and lowest cost tax system is needed NOW!

For more details, please visit www.apttax.com

William J Hermann, Jr. MD, Director APT Tax Project Contact: administrator@apttax.com , 713-932-3773

[ancient_geezer]

Guess we'll just have to make sure they talk to Howard in Australia about their experience with the APT, and check into the studies that exist concerning its effects in South America as well.

 

http://www.webmeets.com/files/papers/lacea/2002/176/BT111101.pdf

Disintermediation and Illiquidity in a Bank Account Debits Tax Model
P.H. Albuquerque
November 11, 2001

 

• Nevertheless authors such as Umlauf(1993), Hkkio(1994), Shome and Stotsky(1995), Jones and Seguin(1997), and Habermeir and Kirilenko argued or found evidence that FTTs not only AA unable to deliver the benefits thought out by their proponents but also can lead to undesired economic distortions.

• Tanzi(2000) and Coelho, Ebrill and Summers(2001) reach different conclusion based on the experiences of Australia and some Latin-American countries that have adopted BAD taxation.⁵ As a rule, the BAD tax experiments failed in Latin America. The following negative consequences were common: financial disntermediation, increased size of the hidden-economy, a sharp and then a slow and constant reduction of financial transactions volume, disappointing revenues (generally smaller than 1% of GDP) no matter the tax rate (which varied from 0.2 to 2.0% effective), shift of capital market transactions to New York, increased use of offshore banking, inefficient merging and vertical integration, increased use of currency and bank account substitutes, and establishment of nonbank clearinghouses.

 

• Australia's Prime Minister John Howard, once referring to a proposal of substituting all taxes in Australia by a BAD tax, declared: "It would completely render comatose a workable financial system in a very rapid period of time. And in a global world in which we now live we'd basically be saying that we're opting out oand going back to the jungle. I think, with great respect to whoever is advocating it ... it's a crazy idea."

Gregory and Zell, you say. I can think of a few others as well that should be apprised of the situation.

[tech30528]

Well, I'm no economist myself. I would hope that the people who actually have a direct effect on these types of policies would do all the appropriate research. If the plan is as flawed as you say it is, I imagine it would be discarded rather quickly. And I don't imagine if it was that Mr. Jenner would be calling me back to say "hey, we looked at that plan and it's crap". I'm just a guy with an idea. The important thing to remember is that in the end, they are just higher paid guys who know other higher paid guys. Maybe one of them will run with it.

[ancient_geezer]

I would hope that the people who actually have a direct effect on these types of policies would do all the appropriate research. If the plan is as flawed as you say it is, I imagine it would be discarded rather quickly.

Some Empirical Research papers regarding the measured effects of transaction taxes in real economies of governments that have implemented them in the modern era:

Coelho, I., L. Ebrill, & V. Summers(2001). "Bank Debit Taxes in Lation America: An Analysis of Recent Trends." IMF Working Paper, 01/67.

Hakkio, C.S.(1994). "Should We Throw Sand in the Gears of Financial Markets?" Federal Reserve Bank of Kansas City Economic Review, 79, 2, pp. 17-30

Summers, L. H., & V. P. Summers(1998). When Financial Markets Work Too Well: A Cautious Case for a Securities Tansanction Tax." Journal of Financial Services Research 3, pp 261-286.

Tanzi, V.(2000). "Taxation in Latin America in the Last Dedcated." Center for Reasearch on Economic Development and Policy Reform Working Paper Series, 76. Stanford: Stanford University.

Umlauf, Steven R.(1993). "Transaction Taxes and the behavior of the Swedish Stock Market." Journal of Financial Economics, 33, 2, pp 227-240.

None have much good to say about real experience with such tax systems.

[ancient_geezer]

As it turns out, my boss knows Zell Miller personally, and is working on a chance to discuss it with him after the holidays.

Oh, by the way, in case you were unaware,

Zell Miller is a strong promoter of the Fair Tax Act over strong objections from the Dem side of the Congress, and co-sponsored for the bill's first introduction of the Senate version of the HR25 this last Congressional session along with its prime sponsor Sen Chamblis Saxby.

 

S.1493
Title: A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States.
Sponsor: Sen Chambliss, Saxby [GA] (introduced 7/30/2003)      Cosponsors (1)
Related Bills: H.R.25
Latest Major Action: 7/30/2003 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

---

COSPONSORS(1), ALPHABETICAL [followed by Cosponsors withdrawn]:     (Sort: by date)

Sen Miller, Zell [GA] - 7/31/2003

 

Don't be surprised if you boss comes back either converted to the NRST way of doing things, or somewhat disappointed in his efforts. LOL

It is too bad that Zell is retiring from the Senate, we will miss his direct aid in the Senate.

As you say, we'll just have to see what he can do in his new position over in FOX ;O)

[PTBarnum]

In spite of all your selective citations, you have failed to make one single point stick as to why APT won't work. Is their a cascading effect? No. Will it destroy equity or currency markets? No. Will it cause runaway government spending? No. Were there any other objections raised in this thread that weren't shot down? APT's virtues outweigh any initial difficulties that will need to be overcome in it's implementation. It's virtues are that individuals are freed from being overburdened with taxation while many politically connected sectors are subsidized. I say Americans should not be tax mules. APT takes the politics out of tax policy. If you think NST accomplishes this, guess again. The lobbyists will be all over that 30% behemoth. APT's other principle virtue is that it is a tremendous economic stimulus. This point alone makes it worth doing.

[ancient_geezer]

In spite of all your selective citations, you have failed to make one single point stick as to why APT won't work.

LOL, I don't have to make the case, the fact that the APT has failed miserably in Australia, Latin America, and Sweden is more that well documented, making that case in spades.

Is their a cascading effect? No.

"BAD taxation levies on all other tax payments, on investments, on capital turnover and on bonds turnover. It cascades through production, penalizing specialization, diversification and competition. It unnecessarily benefits vertical integration. I punishes the small firm, which cannot concentrate transactions inside its boundaries."
P.H. Albuquerque 2001

Will it destroy equity or currency markets? No.

"In contrast, Tanzi(2000) and Coelho, Ebrill and Summers(2001) reach different conclusion based on the experiences of Australia and some Latin-American countries that have adopted BAD taxation.⁵ As a rule, the BAD tax experiments failed in Latin America. The following negative consequences were common: financial disntermediation, increased size of the hidden-economy, a sharp and then a slow and constant reduction of financial transactions volume, disappointing revenues (generally smaller than 1% of GDP) no matter the tax rate (which varied from 0.2 to 2.0% effective), shift of capital market transactions to New York, increased use of offshore banking, inefficient merging and vertical integration, increased use of currency and bank account substitutes, and establishment of nonbank clearinghouses."
P.H. Albuquerque 2001

Financial transaction taxes are passed on and cascade through increased interest rates:

The net return of an asset after discounting the BAD tax payments on asset transactions increases with BAD taxation. Capital and bond owners transfer their tax payments to renters(for example, companies, loan takers, and government) through higher rates of return.
P.H. Albuquerque 2001

"The Brazilian BAD tax(CPMF) experience was evaluated. The empirical analysis showed that revenue productivity is very sensitive to the tax rate, engendering a possible Laffer curve. It was also shown that their might be impacts on real interest rates, particularly in the case of high-turnover loans. The CPMF is perhaps one of the explanations for the high interest rates and high spreads between bonds in Brazil."
P.H. Albuquerque 2001

 

Will it cause runaway government spending? No.

LOL, we already have runaway government spending with just half the electorate minimally participating in the current tax system. Under your APT all 100% of the electorate get to believe in the toothfairy.

not to mention:

Payments of interests on government bonds have a negative equivalent tax rate, meaning that these payments affect government spending negatively after the introduction of a BAD tax. The real interest rate increases, and government ends paying a higher interest bill.
P.H. Albuquerque 2001

"It is easy to note from the table that the increase in government interest rate payments may not be covered by the additional net revenues coming from government bonds turnover. In reality, as it will be shown in the next section, the net revenues will never cover the increase in interest rate payments. The larger the total amount of interest rrate payments, or in other words the larger the debt, the worse will be this negative effect on the government fiscal balance."
P.H. Albuquerque 2001

As a result, the BAD tax revenue contribution to the fiscal balance in countries that adopted this tax is probably an inflated figure. The revenue accounting does not take into consideration the deleterious impacts of the tax on government spending with interest rates.
P.H. Albuquerque 2001

Levying a BAD tax on government debt transactions can only impair net revenue. A sensible government would leave government bonds transactions out of the tax incidence base.
P.H. Albuquerque 2001

 

Were there any other objections raised in this thread that weren't shot down?

None have been shot down thus far, all anyone has seen from you are empty words and nothing to back them up out of historical experience. In fact the historical experience thoughout the world in regards to transaction taxes has overwhealmingly support the fact that:

"Theory and evidence indicate that the BAD acronym is perhaps more than witticism"
P.H. Albuquerque 2001

See also:

Coelho, I., L. Ebrill, & V. Summers(2001). "Bank Debit Taxes in Latin America: An Analysis of Recent Trends." IMF Working Paper, 01/67.

Garber, P., & M. P. Taylor(1995). "Sand in the Wheeels of Foreign Exchange Markets: A sceptical Note. " Economic Journal, 105, 428, pp. 173-180.

Habermeier, K., & A Kirilenko(2001). "Decurities Transaction Taxes and Financial Markets." IMF Working Paper, 01/51.

Hakkio, C.S.(1994). "Should We Throw Sand in the Gears of Financial Markets?" Federal Reserve Bank of Kansas City Economic Review, 79, 2, pp. 17-30.

Jones, C.M., & P.J. Seguin(1997). "Transacton Costs and Price Volatility: Evidence from Comission Deregulation." American Economic Review, 87, 4, pp 728-737.

Shome, P., & J. G. Stotsky(1995): "Financial Transactions Taxes." IMF Working Paper, 95/77.

Tanzi, V.(2000). "Taxation in Latin America in the Last Decade." Center for Reasearch on Economic Development and Policy Reform Working Paper Series, 76. Stanford: Stanford University.

Umlauf, Steven R.(1993). "Transaction Taxes and the behavior of the Swedish Stock Market." Journal of Financial Economics, 33, 2, pp 227-240.

 

It's virtues are that individuals are freed from being overburdened with taxation while many politically connected sectors are subsidized.

ROTFLMAO!! you mean the electorate is bamboozled into paying ever higher tax revenues hidden out of there sight and accounting into government coffers to support the special interests supporting corrupt politicians.

APT takes the politics out of tax policy.

In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other.
-Voltaire (1764)

 

If you think NST accomplishes this, guess again. The lobbyists will be all over that 30% behemoth.

Unlike the 30%+++ revenue neutral APT LOL. Where the mechanics are safely out of view of the electorate and the politicians have full reign to punish their adversaries and reward thier sycophants.

APT's other principle virtue is that it is a tremendous economic stimulus.

Australia's Prime Minister John Howard, once referring to a proposal of substituting all taxes in Australia by a BAD tax, declared: "It would completely render comatose a workable financial system in a very rapid period of time. And in a global world in which we now live we'd basically be saying that we're opting out and going back to the jungle. I think, with great respect to whoever is advocating it ... it's a crazy idea."

"An inspection of the Eurler equations shows that it also majors real interest and dividend rates through two mechanisms. The first, common to other taxes, represents the effect of a lower capital stock. The second effect, characteristic of this kind of tax, is associated with the increased capital and bonds turnover cost. This second effect will generally be substantial and much larger than the first effect."
P.H. Albuquerque 2001

That which you tax you will have less of:

"Note that the BAD tax is equivalent to a consumption tax, and income tax, an investment tax, a tax payment tax, and a capital turnover tax."
P.H. Albuquerque 2001

[ancient_geezer]

In spite of all your selective citations, you have failed to make one single point stick as to why APT won't work.

One does not prove a negative.

You have made the affirmative assertions here that it is the best thing since fried ochra for the United States, yet have offered no evidence of the validity of those claims as regard the effect of the APT on this nation. You merely made unfounded assurances and blown hot air with no substantiation in historical experience.

“He who asserts must also prove.” 
Artistotle

With no burden of proof upon me, I have in spite of the maxum, provided more than ample evidence of the invalidity of your claims, and of the dangers of the APT.

Now the burden lay wholly with you. To show in historical examples the validity of your claims that they will be realized in actual implementation in this nation. Thus far you have provided nothing that indicates your claims are anything but hot air.

You have failed to show any support whatsoever in Congress. Where the clear fact is the APT is does not even mention anywhere in the Congressional Record of the last eight sessions of Congress. One would think that such a wonderful tax as you describe would have sufficient support of even one Congress Critter to be mentioned at least once on the floors of Congress, or even engender at the introduction of one bill in support. Nada, zippo nutt'n out there.

With all the empirical evidence that I have been able to turn up, the APT has been shown to be little more than a fevered fantasy of a few academics with pretensions to grandeur. Unfortunately the clear evidence is that it has every capacity of the worst socialist schemes to destroy capitalist markets. Heck to all evidence the APT could not adequately fund even a short range goal, much less the continued operation of a national government of the size of the United States.

Unfortunately for those small nations that have improvidently implemented such a tax scheme, history and current experience is more than replete with the failures of transaction taxes to warn us away from such foolishiness.

[PTBarnum]

All of this stuff you keep putting up to support your contention that APT is a bad idea frankly does not impress me. It rather suggests you have a little too much time on your hands. If one were so inclined, an equivalent amount of stuff could be brought up favoring the case for APT. I'm comfortable with APT based on common sense and intuition. As you've made amply obvious, you have a strong bias against APT. You seem to have a need to prove to yourself that you're right. I have no obligation to prove APT to you, any more than you have an obligation to disprove it. My point is that in spite of your very admirable effort in putting up all this stuff here for us to see, you have not convinced me personally that APT won't work. I see APT as an idea who's time has come, as we and our progeny need it. Fundamental tax reform is in order. The existing tax regimen is an ad hoc mixed bag of political and economic pragmatism, and is a relic of the now passing industrial era. APT is a fundamentally different approach that addresses the needs of the present and the future.

[PTBarnum]

All of this stuff you keep putting up to support your contention that APT is a bad idea frankly does not impress me. It rather suggests you have a little too much time on your hands. If one were so inclined, an equivalent amount of stuff could be brought up favoring the case for APT. I'm comfortable with APT based on common sense and intuition. As you've made amply obvious, you have a strong bias against APT. You seem to have a need to prove to yourself that you're right. I have no obligation to prove APT to you, any more than you have an obligation to disprove it. My point is that in spite of your very admirable effort in putting up all this stuff here for us to see, you have not convinced me personally that APT won't work. I see APT as an idea who's time has come, as we and our progeny need it. Fundamental tax reform is in order. The existing tax regimen is an ad hoc mixed bag of political and economic pragmatism, and is a relic of the now passing industrial era. APT is a fundamentally different approach that addresses the needs of the present and the future.

[eleni121]

"Dr. Edgar L. Feige, Professor Emeritus of Economics from the University of Wisconsin-Madison"

Madison? Professor Doctor? That alone tells me and should tell everyone else to beware!

So, what's with the Dr.? Is he a medical doctor?

[ancient_geezer]

All of this stuff you keep putting up to support your contention that APT is a bad idea frankly does not impress me.

It is not meant to impress you.

It is provided for others who read these threads that they may discern fact and evidence from mere claim. To weigh that evidence and come to their own conclusions.

 

. If one were so inclined, an equivalent amount of stuff could be brought up favoring the case for APT

Then show it, I have done the research all I find to support the claims of the APT are the claims of it's author, agains the empirical evidence of the actual functioning of the tax system, with insights of economists as to the theoretical underpinnings of why a transaction tax will fail to meet the APT claimed goals.

I'm comfortable with APT based on common sense and intuition.

In otherwords your basis is that of no experience at all. You deny the evidence of history and modern era trials of the APT system, and persist in what amounts to blind belief in what you want to believe, a not the reality of practical application and experience of others who have indeed tried your tax system and failed for substantive fault laying with the theoretical basis of the tax itself.

As you've made amply obvious, you have a strong bias against APT.

I never heard of the APT until you people brought it here, I just took the effort to track down the history and economics of it and found it wanting.

I have no obligation to prove APT to you, any more than you have an obligation to disprove it.

You have the burden of proof where you want others to accept your tax system, especially where a body of empirical evidence clearly indicates severe problems with it.

My point is that in spite of your very admirable effort in putting up all this stuff here for us to see, you have not convinced me personally that APT won't work.

You are welcome to your beliefs however, beliefs not founded in fact and logic become little more than mere fantasy and superstition.

"Facts are stubborn things; and whatever may be our wishes, our inclination, or the dictates of our passions, they cannot alter the state of facts and evidence."
--John Adams

Fundamental tax reform is in order. The existing tax regimen is an ad hoc mixed bag of political and economic pragmatism, and is a relic of the now passing industrial era.

That is a fact on which we both may agree.

APT is a fundamentally different approach

Merely being different or unknown to you, is not a basis for fundamental soundness of a system.

that addresses the needs of the present and the future.

Empirical evidence and theoretical underpinnings of the failure of APT type taxes in numerous countries in history as well as current era suggest strongly otherwise.Apparently the best that can be said for it on an experiential basis is what is indicated by Tanzi as a result of empirical evaluation of Latin American versions of the APT:

The following empirical data suggests a 0.25% APT tax on banking & finance yields ~1% of GDP tax revenues. By extension a full APT would cover an incidence base of approximately 4 times banking transactions, good for approximately 4% of GDP in tax revenue production.

The current federal tax system yields more than 5 times the level of a universal APT.

Tanzi, V.(2000). "Taxation in Latin America in the Last Decade." Center for Reasearch on Economic Development and Policy Reform Working Paper Series, 76. Stanford: Stanford University.

 

Page 31:

Financial Transactions or Bank Debit Taxes

Another, less attractive innovation is the tax on bank debit. As Table 11 shows this tax is now in existence in Brazil, Colombia, Ecuador, and Venezuela. In earlier years it was also used in Argentina and Peru and last year it was considered in Mexico which eventually decided against its introduction. In Colombia the tax was introduced to make up for revenues lost by lowering the value-added tax rate. In Ecuador it replaced income taxes. When this tax was introduced in Argentina and Peru in the early 1990s the results were not good. The initial revenue contribution quickly eroded and other problems appeared.

In its more recent versions the tax seems to have generated less difficulties, at least in the short run, and more revenue than in earlier years and the tax has acquired some strong supporters. There is very little popular opposition to it, it is relatively easy to administer, and it generates significant revenue. If it is applied at a very low rate, it may conform with a kind of "honey bee" approach to taxation whereby each collection is so small that it does not elicit a response on the part of the taxpayer. However, at higher rates and especially over a longer time frame this tax would likely have higher costs.

The bank debit tax is essentially an excise imposed on a specific activity, namely the use of bank checks. If the tax rate is small and the elasticity of demand for bank checks is low, the tax may not generate attempts at avoidance. However, if the rate becomes higher, individuals may realize that there are ways of avoiding this tax. Use of cash instead of checks would be one such way. Use of dollars would be another. Arranging to make payments through foreign accounts would be still another. Use of barter would be a further one. If the tax leads to a reduction in financial transactions, it would inevitably affect the efficiency of the economy. However, it is fair to state that almost all taxes have costs. Therefore, the choice must be made among second or even third best options. If the bank debit taxes are used at low rates and only for periods of transition to better revenue sources, then, maybe, they deserve a less negative reaction than most tax experts would give them. However, they should not become permanent features of tax systems.

 

Table 11. Gross Revenue from Bank Debit Taxes

                Tax        In Percent of   In Percent of
          Year  Rate       GDP             Tax Revenue       Productivity 1/
                

Countries where tax is being enforced:
Brazil    1994  0.25       1.06            3.6               4.24
          1997  0.20       0.80            2.8               4.00
          1998  0.20       0.90            3.0               4.50
          1999  0.22 2/    0.79            2.6               3.61

Colombia  1999  0.20       0.77            4.3               3.85
Ecuador   1999  1.00       3.50           26.7               3.50 3/

Countries where tax was discontinued:
Argentina 1989  0.70       0.66            4.3               0.94
          1990  0.30       0.30            2.0               0.99
          1991  1.05 2/    0.91            5.4               0.86
          1992  0.60 2/    0.29            1.5               0.97 4/
Peru      1990  1.41 2/    0.59            6.4               0.42
          1991  0.81 2/    0.46            5.0               0.57
Venezuela 1994  0.75       1.30            7.7               2.60 4/
          1999  0.50       0.60            4.9               1.80 4/

 

Somehow I do not see 4% of GDP sufficient for the revenue needs of this or any nation.

[APT Project Director]

Do you need to smear a very well respected career economist and teacher who now is a Rockefeller scholar and consultant to many goverments? Dr. Feige is a very approachable and sincere man with a great idea that crosses political lines in that it is so universally beneficial. I have detected no political agenda in his presentation and explanation of the APT plan.

[APT Project Director]

I apologize for being a bit absent from this raging debate but I am very busy outside of the blog. I want to clearly explain the many citations of "failure" you quote and set the record straight. ALL of the transaction tax attempts you quote have been flawed from the beginning and categorically OPPOSED by Dr. Feige because they failed to follow an essential tenet of the true APT concept. Therefore you should not refer to them as "APT" since they are merely transaction taxes NOT close to what is being proposed for the USA. That essential element is the total REPLACEMENT of all other forms of taxation. ALL of these countries had inadequate economic environments and used the transaction tax to "pile on" -- in the case of Australia the transaction tax was imposed at the state level so lots of game could be played. The paper you so frequently quoted by Mr. Albuquerque(sp?) is actually a doctoral thesis which was rounded criticized due to its simplistic and unrealistic assumptions.

Let me make it perfectly clear, we fully recognize that the way the transaction taxes have been imposed in several countries will indeed create a distortion and "cascade" effect that ancient_geezer so frequently states. However, being cognizant of this we specifically proposed from the beginning the requirement to totally REPLACE Federal taxes in the same way the NRST does. Why? Because we need the removal of the embedded taxes and compliance costs (estimated at 20%) at EVERY level of the supply chain to provide the stimulus and definitively short circuit the "cascade" effect when we add back in the 0.25% per transactor or 0.5% if both sides are paid by one transactor. Therefore at worst case the companies all up and down the supply chain with a 19.5% cost savings. Maybe prices will be reduced by that amount or maybe companies can maintain some of the savings - but that is a market decision we don't attempt to predict or need to predict for our plan to succeed. Therefore, may I reiterate, the APT as proposed for the USA has never been instituted anywhere and lesser models should not be used to criticize it because the difference is night and day.

Another essential not fulfilled by previous partial use of transaction taxes is that the security markets indeed will be effected if they are not robust enough to allow the stimulus referred to above, to filter through and be expressed in increased sales and earnings serving to fundamentally increase the VALUE of publicly traded companies. Our markets are plenty robust and the tax rate is so small that the doomsday scenarios proffered loudly on this site just aren't real despite all the ranting. The amount of investment capital to be invested by individuals from their tax reductions will flow through the financial firms and into the markets in large waves.

I would refer everyone observing this debate back to my post #364 for further explanation and comparison with NRST. And , no we don't have a HR number and neither did NRST 10 months into its public introduction.

[ancient_geezer]

Because we need the removal of the embedded taxes and compliance costs (estimated at 20%) at EVERY level of the supply chain to provide the stimulus and definitively short circuit the "cascade" effect

Nice words but one does not short circuit "cascade" effect.

Cascading arises from the requirement that capital that is taxed away must be replaced else the loss accumulates to the destruction of business profitibility.

Any system of serial transactions(i.e. turnover) must of necessity return the cummulative charges against capital costs. The recovery of this taxed capital is accomplished through anticipatory pricing to compensate for taxes the same as all other charges against capital thus tax is laid upon the recovery of tax which results in cascade of the tax.

Cascading is inescapable where tax is against the gross value of transaction.

The only alternative to cascading is where avoidence of the tax can be accomplished, which defeats the purpose of the tax, that of revenue collection.

In the case of the APT, the creation vertical mergers avoiding the necessity of taxible monetary transfer transactions. The unfortunate side effect of which are the institution of monopolies driving small businesses that do not have the resources for merger aquisitions and tax avoidence, out of the market.

Other methods of avoidence in high turnover activities such as trading is to remove ones transactions out of the jursidition of taxation, e.g going to a foreign exchanges, using non-bank alternative to moving money(e.g. multi-party checks, cash, barter, and other disintermediation activities.)

In the area banking and bonds the tax on high turnover is recovered in higher rates of interest on the borrower.For government this means lower net revenue available and as the pointed out by P.H. Albuquerque(2001) above, the actual increase in interest payments by government in servicing deficit and debt financing often exceeds any expected revenue gain predicated by the implementation of ubiquitous taxes.

However, being cognizant of this we specifically proposed from the beginning the requirement to totally REPLACE Federal taxes taxes in the same way the NRST does.

Mere total replacement of taxes is an insufficient condition, the legal incidence of the tax remains in the market & production sector where cascade arises out of the necessity to recover of capital losses incurred due to the tax extracted. That replacement is operative factor of cascade, that the APT tax does not remove. Unlike the the NRST which is explicitly incident (economically and legally) upon the consumer as opposed to the factors of production and marketing.

Where the APT tax must pass down to the consumer embedded into price cascading at each turnover in the financial and production chains, the NRST is expressly collected once and only once with no cascading possible as it occures only at one transaction, and not multiply in turnover situations the APT is expressly designed to tax.

. Therefore at worst case the companies all up and down the supply chain with a 19.5% cost savings.

Since the financial turnover transactions of the companies all up and down the supply chain are expressly taxed and the overhead burden of compliance with the tax system lay on those companies their is little saving to be had in that chain. The full weight of the tax falls upon the production/financial system, the burden of which is passed down the chain accumulating into the price of final consumer products paid in total by the consumer, i.e. individual at the end of the line. The entire tax bill (30%+ federal, state and local) passes on to the consumer in price as opposed to the nominal overt transaction tax the citizen can directly perceive.

Sorry but you attempts to hide the reality that only people pay taxes, not business, your pretence at 0.25% tax rate when the reality lay in the 30% embedded in price leaves one wondering just what your game here really is. It certainly is not truth in taxation in any way shape or form.

Therefore, may I reiterate, the APT as proposed for the USA has never been instituted anywhere and lesser models should not be used to criticize it because the difference is night and day.

All the more necessary to approach the APT will severy skeptiscm. As Australia's Prime Minister John Howard puts it in reviewing the reasons why Australia is repealing its Bank Accounts Debit taxes in 2005 and not going to a full implementation of an APT, "It would completely render comatose a workable financial system in a very rapid period of time. And in a global world in which we now live we'd basically be saying that we're opting out and going back to the jungle."

The words of experience, not wishful thinking or wrong headed sincerity.

And , no we don't have a HR number and neither did NRST 10 months into its public introduction.

Actually the Fair Tax Legislation did have simultaneous public introduction' with its introduction as legislation into Congress in 97. The bill was the result of the authoring process, its introduction into Congress was virtually coincident with its public debut.

[tech30528]

Understood. And I think it's important that you understand that I'm not dead set on either plan, I see some problems with both. Truthfully, the Fair Tax plan makes a lot of sense. After thorough investigation, if the Fair Tax plan prevails, I won't be disappointed. But I will have a thorough understanding of it by the time that occurs, which is much better than my ( or most others, for that matter) understanding of our current tax code. As I've stated before, I'm here for answers, not to convert. And while Zell Miller has been a proponent of Fair Tax, he may not have ever considered APT. I'm looking forward to the discussion, whichever path it takes.

[APT Project Director]

Well I have appreciated this interaction more than you know. You are a very sharp and knowledgeable person. I also favor the NRST over the current system but believe once installed it can serve as an effective stepping stone to the APT system. Because there are some real negatives that I believe will at least cause a fierce debate between the parties if not cause it to be defeated or never put in the spotlight. For example the double taxation issue I raised in post 364 #3 you did not answer directly. I don't mean to do battle again just telling you my outlook.

Lastly, and it may truly be lastly, I understand your points regarding the "cascade effect" but you must put this in quantitative context. APT is orders of magnitude different in rate vs. traditional and even NRST rates -- therefore you can argue qualitatively but when you apply the relative numbers it just doesn't wash -- and we designed it that way purposefully. Indeed, you take away 20% (to quote NRST) from every business at every level and add back 0.25 or 0.5% -- you just can't have a accumulative addition from a big subtraction. The 30% you frequently quote would never be reached -- unless you gave no tax relief and just piled on top like in Australia and every other quickie implementation around the globe. At least the software has been well tested. I can't help the lassitude of Americans if they do not feel the pain of taxes but I've had enough pain and if you ask the voter which they choose you know the result.

I am repeating old arguments now, so will sign off and wish you good luck with NRST. You are an excellent advocate.

[ancient_geezer]

The 30% you frequently quote would never be reached

Then it is not revenue neutral and cannot replace the tax revenues you claim for it.

All costs impinging on production and finance, must be reflected in retail price or business folds. That is the inescapable fact.

The full bill is always paid by the citizen, and only people have the capacity to pay a tax. There is nowhere else for it to come from.

Since your APT taxes replaces taxes on all levels of govenment and is imposed on all factors feeding ultimately to expenditure of the American people, the bottomline cumulative tax upon them is the percentage of Net National Product that federal, state and local government revenue represents.

 

from Tax Freedom Day 2004 PDF http://www.taxfoundation.org/sr129.pdf

 

Total Effective Tax Rates by Level of Government Percent Net National Product(NNP)
Year	Federal	State	Total
1998	22.4%	10.4%	32.8%
1999	22.5%	10.4%	32.9%
2000	23.1%	10.4%	33.5%
2001	22.2%	10.5%	32.7%
2002 1	19.7%	10.2%	29.2%
2003 2	18.5%	10.1%	28.6%
2004 3	17.9%	10.0%	27.9%
Notes: Leap day is omitted to make dates comparable over time. Positive and negative percentages in parentheses after legislation indicate the first-year fiscal impact of the bill,measured as a percentage of NNP. Since depreciation is not available to pay taxes, GDP is an overstatement of spendable income for the purpose of measuring tax burdens. Depreciation is netted out of NNP. 1 Economic Growth and Tax Reform Reconciliation Act of 2001 2 The Job Creation and Worker Assistance Act of 2002 3 Job Growth and Tax Relief Reconciliation Act of 2003 Sources: Office of Management and Budget; Internal Revenue Service; Congressional Research Service; National Bureau of Economic Research; Treasury Department; and Tax Foundation calculations.

[PTBarnum]

This thread is pretty mature. The more we discuss here, the more remains to be discussed. And this is as it should be. The topic is of high significance. Strongly held views have been posted here in earnest. Conflicting views have been rigorously advanced. And yet, the debate does not end here. We've considered here a fundamental issue of our time. For my part, I've endeavored to advance a sense of optimism, and of historic opportunity. To be American in America today is a truly privileged status. Going forward, I hope to see the debate elevated. We're human and have our shortcomings. Yet I see virtue in some of our failings. In the rigors of debate we become willful. And I know this is controversial, but I believe willfulness to be the expression of the god within us. It's the expression of the indomitable human spirit. In that vain, it has been a pleasure to have participated in what has transpired here. I place great significance in this ongoing discussion. I fully appreciate the historical experience of America and of America's exceptionalism. Our blessings carry with them a great duty. I believe we are thus obligated to see beyond ourselves to the higher purposes our privileged lives engender. Forgive me for my high sounding verbiage here, but it is sincere, and appropriate. I want to express my genuine appreciation to the APT project director, for starting this thread, and for contributing to it in numerous posts. Let me end by saying it's been great FReepin' here. I wish you all the best.

[tech30528]

Ping!
Just dropped in to see if anybody was still checking this thread. Well, I've read H.R.25,and I have some answers, and some questions. You still with me here, Geez?

In relation to real estate investment, Chapter 1, Section 102

INVESTMENT PURPOSE- No tax shall be imposed... on any taxable property or service purchased for an investment purpose and held exclusively for an investment purpose. For purposes of this section, the term 'purchased for an investment purpose' means property purchased exclusively for purposes of appreciation or the production of income but not entailing more than minor personal efforts.

I would interpret this to mean that I can purchase homes for use as rental properties and not be subject to taxes. And that makes me very happy.

However, there is no such clause referring to primary residence. Except for exclusion of used property 'on which the tax imposed by section 101 has been collected' and 'was held other than for a business purpose', it sounds like a new home purchased for primary residence or a used home bought from a business (which was exempt from tax) would be subject to 23% sales tax.

Now, I remember you saying that the price of the tax would be figured in to the price of the used home by the seller, therefore eliminating the gap between new and used home prices. But imagine a home doubling in value over 12 years (fairly typical) vs. a comparable new home. The used home has only paid half the amount in taxes, and therefore has a clear advantage in negotiating sale. Conversely, a new home bought from a business entity would be subject to tax at appraised value because the original owner was tax exempt. How is a business to sell a used property with this kind of disadvantage?

Then there is the matter of avoidance. Say my partner and I build our $100k home. We have actually spent $60k building it. I can then sell the house for just enough to cover my expenses to my partner or a third party, who pays taxes on $60k, then turns around and sells it used for market value. The tax paid is $13,800. Now the expenses are $73,800. The house sells for $100k, clearing $26,200. after the second sale, the buyers have a used home that has never been lived in that paid 16% tax instead of 23%.

Why would anyone do this you might ask? Because if the builders invest $60k, then take the same $26,200 profit, sells the house for $86,200, the buyer pays 23% or $19,826, and now has the same home for $106,026. Assuming the transactions cost less than $6,026, why wouldn't they?

Help me out here Geez. I've done my homework, but I'm still seeing problems. If this plan goes into effect I need to know what to do.

[ancient_geezer]

However, there is no such clause referring to primary residence. Except for exclusion of used property 'on which the tax imposed by section 101 has been collected' and 'was held other than for a business purpose', it sounds like a new home purchased for primary residence or a used home bought from a business (which was exempt from tax) would be subject to 23% sales tax.

They are.

But imagine a home doubling in value over 12 years (fairly typical) vs. a comparable new home. The used home has only paid half the amount in taxes, and therefore has a clear advantage in negotiating sale. Conversely, a new home bought from a business entity would be subject to tax at appraised value because the original owner was tax exempt. How is a business to sell a used property with this kind of disadvantage?

Used in the bill = taxes previously paid remember. If taxes are paid with no credit received to offset those prior taxes, no further NRST is to be collected. This is a one time tax on use and consumption, it is not a capital gains tax. Any gains realised as a consequence of legitimate appreciation of assets of residential property will have the NRST collected when spent for further use/consumption, or not turned to investment purposes.

I fail to see a disadvantage.

if the builders invest $60k, then take the same $26,200 profit, sells the house for $86,200, the buyer pays 23% or $19,826, and now has the same home for $106,026. Assuming the transactions cost less than $6,026, why wouldn't they?

You don't figure state retail sales and income tax administrators are blind to this kind of business use conversion? It happens under the current tax system in various forms to obscure and hide income or disguise income as capital. Guaranteed that state treasurers will be cognizant of transactions in property tax valuations and will be quite aware of corallary scams to evade/avoid the NRST.

Essentially you have a fraudulant conversion of business assets to evade taxes going on, covered in state laws currently, as well as the requirements of the NRST bill where such conversions are required to be dealt with.

The following are examples of empowering legislation under Sections 103& 705 which form the basis on which the provisions empowering the Secretary of the Treasury to formulate appropriate regulations will cover such obvious scams. When applied with Chapter 5 penalties for non remittance or payment of NRST owned you will find all that is actually necessary for the states to go after such practices where the rise to obvious actions to evade the NRST.

 

---

`SEC. 103. RULES RELATING TO COLLECTION AND REMITTANCE OF TAX.

`(a) LIABILITY FOR COLLECTION AND REMITTANCE OF THE TAX- Except as provided otherwise by this section, any tax imposed by this subtitle shall be collected and remitted by the seller of taxable property or services (including financial intermediation services).

*** snip ***

`(c) CONVERSION OF BUSINESS OR EXPORT PROPERTY OR SERVICES- Property or services purchased for a business purpose in a trade or business or for export (sold untaxed pursuant to section 102(a)) that is subsequently converted to personal use shall be deemed purchased at the time of conversion and shall be subject to the tax imposed by section 101 at the fair market value of the converted property as of the date of conversion. The tax shall be due as if the property had been sold at the fair market value during the month of conversion. The person using or consuming the converted property is liable for and shall remit the tax.

`(d) SELLER RELIEVED OF LIABILITY IN CERTAIN CASES- In the case of any taxable property or service which is sold untaxed pursuant to section 102(a), the seller shall be relieved of the duty to collect and remit the tax imposed under section 101 on such purchase if the seller--

`(1) received in good faith, and retains on file for the period set forth in section 509, a copy of a registration certificate from the purchaser, and

`(2) did not, at the time of sale, have reasonable cause to believe that the buyer was not registered pursuant to section 502.

`(e) PURCHASER LIABLE TO COLLECT AND REMIT IN CERTAIN CASES- In the case of any taxable property or service which is sold untaxed pursuant to section 102, if the seller is relieved by reason of subsection (d) of the duty to collect and remit the tax imposed by section 101, then the duty to pay any tax due shall rest with the purchaser.

`(f) BARTER TRANSACTIONS- If gross payment for taxable property or services is made in other than money, then the person responsible for collecting and remitting the tax shall remit the tax to the sales tax administering authority in money as if gross payment had been made in money at the tax inclusive fair market value of the taxable property or services purchased.

`(g) INTERCOMPANY SALES- Firms that make purchases from affiliated firms that are untaxed pursuant to section 102, or make sales to affiliated firms that are untaxed pursuant to section 102, shall not need to comply with the requirements of subsection (d) (relating to certificates) for said purchases or sales to remain untaxed.

---

 

`SEC. 705. MIXED USE PROPERTY.

`(a) Mixed Use Property or Service-

`(1) MIXED USE PROPERTY OR SERVICE DEFINED- For purposes of this section, the term `mixed use property or service' is a taxable property or taxable service used for both taxable use or consumption and for a purpose that would not be subject to tax pursuant to section 102(a)(1).

`(2) TAXABLE THRESHOLD- Mixed use property or service shall be subject to tax notwithstanding section 102(a)(1) unless such property or service is used more than 95 percent for purposes that would give rise to an exemption pursuant to section 102(a)(1) during each calendar year (or portions thereof) it is owned.

`(3) MIXED USE PROPERTY OR SERVICES CREDIT- A person registered pursuant to section 502 is entitled to a business use conversion credit (pursuant to section 202) equal to the product of--

`(A) the mixed use property amount; and

`(B) the business use ratio; and

`(C) the rate of tax imposed by section 101.

`(4) MIXED USE PROPERTY AMOUNT- The mixed use property amount for each month (or fraction thereof) in which the property was owned shall be--

`(A) one-three-hundred-sixtieth of the gross payments for real property for 360 months or until the property is sold;

`(B) one-eighty-fourth of the gross payments for tangible personal property for 84 months or until the property is sold;

`(C) one-sixtieth of the gross payments for vehicles for 60 months or until the property is sold; or

`(D) for other types of taxable property or services, a reasonable amount or in accordance with regulations prescribed by the Secretary.

`(5) BUSINESS USE RATIO- For purposes of this section, the term `business use ratio' means the ratio of business use to total use for a particular calendar month (or portion thereof if the property was owned for only part of said calendar month). For vehicles, the business use ratio will be the ratio of business purpose miles to total miles in a particular calendar month. For real property, the business use ratio is the ratio of floor space used primarily for business purposes to total floor space in a particular calendar month. For tangible personal property (except for vehicles), the business use ratio is the ratio of total time used for business purposes to total time used in a particular calendar year. For other property or services, the business ratio shall be calculated using a reasonable method. Reasonable records must be maintained to support a person's business use of the mixed use property or service.

`(b) TIMING OF BUSINESS USE CONVERSION CREDIT ARISING OUT OF OWNERSHIP OF MIXED USE PROPERTY- A person entitled to a credit pursuant to subsection (a)(3) arising out of the ownership of mixed use property must account for the mixed use on a calendar year basis, and may file for the credit with respect to mixed use property in any month following the calendar year giving rise to the credit.

`(c) CROSS REFERENCE-

`For business use conversion credit, see section 202.

---

 

Help me out here Geez. I've done my homework, but I'm still seeing problems.

LOL, I'm not likely to be involved in such nefarious goings on however I'm definitely not too worried about government having to tighten its belt abit if that were a result. If you figure a county/state treasurer's office is not going to notice the fraudulant transactions in this kind of property scam, go for it.

OTOH, you would do well to recognize those state tax administrators are empowered by the bill and paid on the basis of total federal tax collections in their states and encouraged to go after such miscreants both for the sake of their own assessments as well as federal.

However philosophically and as importantly, Evasion and avoidence are more symptoms of an excess tax situation, Hamilton expresses it very well, and government is well advised to heed the sentiment:

Federalist #21:

"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "

"It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.

They prescribe their own limit, which cannot be exceeded without defeating the end proposed - that is, an extension of the revenue."

When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four."

If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.

This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

 

If this plan goes into effect I need to know what to do.

That's easy, collect the appropriate NRST on true market vale and quit trying to game the system.

Be assured the the US Treasury has the same empowerment to provide guiding regulation for state administrators to properly enforce the provisions of the legislation, where required, to assure compliance with the intent of Congress to collect the NRST once but only once on fair market price new goods and services, as it does today for the IRS in administering and enforcing the income/payroll tax system.

The main difference will be in the fact that only state administrators will be actually involved in the nuts and bolts of actual administration and implementation on the local level as regards those who hold the liability to remit the NRST. You only have to dodge one master instead of two. Though that one master is abit closer to what is going on locally that that distant Federal one will ever be.