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

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!

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

I've railed against the Tobin Tax and its relatives, and its adherents, here and elsewhere ever since that goofball academic first mentioned it. It is unquestionably the single most unsound taxation method ever conceived, in terms of the side effects that will be produced immediately.

While such a tax -- 0.6% of the gross value of the transaction is usually the figure mentioned -- will not cause a halt in investment, it will reduce trading liquidity in its tracks, in every market affected (here, meaning anything trading in NYC, Chicago, Philly, Boston, or on any domestically-run electronic exchange. Why? That's such a cinch to answer that even today I find it hilarious that any marginally informed or sane person doesn't see the answer as pellucidly as looking out the window at the sunrise.

The person purchasing shares for the long term won't much care about a 0.6% inside tax...but that person is NOT the bulk of the marketplace, merely a small fraction of it, and in any case there are many other things trading than shares of common stock, whether on or off exchange floors.

See if you can follow the addition, boyo -- then, tell me in all your expert (cough) wisdom why you won't kill off, literally kill right off, an enormous number of markets. Ready? Here we go with a nice, everyday, real-world (I know that's not your favourite world, but one has to start someplace) example.

Light Sweet Crude Oil for January 2005 is trading on NYMEX at $42.70/bbl as I write this. The gross transactional value of 1 contract -- 1000 bbls per contract -- is of course therefore $42,700. 0.6% of that is exactly $256.20. A typical commission on one side of a crude trade is $15-18, including floor fees and whatnot, and, of course, the trader will have to dispose of the contract at some point in future, costing another commission. Let's say, for convenience, that total commission and price slippage cost the trader $50.00 round-turn, thus something on the order of $310 in transaction costs for each contract traded.

Boy, what slick geniuses you people are. That's 31 points per contract, and I'm here to tell you right now that NO -- absolutely NO -- retail trader is going to deal in that kind of market, with such excessive costs. Kiss 'em goodbye from day 1 of the implementation of your asinine tax. But wait (as good ol' Ron Popeil always says), there's more.

Guess who else won't play, at that level of cost? The floor traders, the chaps who make the market. Ordinarily their costs are a couple of dollars -- that's right, putznagel, $2.00, $3.00, $4.00 or less -- per contract. You're going to hit them with a 12,250% increase in their daily business costs? The hell you will, pal -- the price of every exchange seat in the country will be down 80% or more before you can turn around. And, I wouldn't give real short odds on your continued existence should you happen to bump into one of them after implementing your little fantasy world, either.

Stick around, dimwit -- I'm just warming up on this topic, and, unlike you and your fantasy world, I deal in the real world. Typically, you clowns will attempt to brush off the argument so-far-made with something like, ''Well, that's just the commodity futures markets. That's just a gambling game, and we'd probably be better off if those markets were sharply curtailed in the public interest.'' Or some set of words to that effect, right?

Now, if it happens that you're somehow bright enough to NOT make that economically illiterate argument, please skip down to the next graf. How valuable are futures markets to the US? Oh, I'd say fairly valuable. Generals Grant and Sherman, and President Johnson, after the Civil War, made a special trip to the Chicago Board of Trade to thank the members, and the exchange, for their assistance in seeing that the Union armies had timely deliveries of oats (and other feed) for their horses, and also for preventing a food panic in the Eastern cities. That's just one of several dozen major examples, btw -- many more on request.

However, the futures markets aren't even the principal instance of the havoc your and your fellows' lunatic scheme will create. Let's just talk about debt for a moment.

The US gov't, and many of the states, and too many of the counties and cities, RUN on debt -- they quite literally can't exist without the issuance of debt. 0.6% is 60 basis points, chief; do you really believe that those who finance this government, especially increasingly the Japs and the ChiComs, are going to EAT 60 bp just because they're such nice chaps and admire your brain-damaged idea so much? Yah, right. Got some oceanfront property in the Sahara for ya, too. They're going to DEMAND that 60 bp back -- and even a bit more -- before the buy the bloody bonds in the first place. Sheesh. So, cleverly, your dingbat scheme immediately forces interest rates higher all along the yield curve, on a cost-plus basis. Why cost-plus? Because guess what, junior, Goldman and Solly and Paribas and Barclay's and every other investment bank in the world aren't going to accept your little haircut either. Their spreads will ALSO change immediately, to cover YOUR imposed cost. So, the gov't will pay more for money, not once but twice, and guess who foots the bill? Right you are, every taxpayer in the land will get, directly or indirectly, a tax increase. Ah, the marvels of static economic analysis, as practiced by incompetents!

Now, markets aren't going to shut down because of you and your dipstick notions (well, a few will -- but what the hell, you don't care), but what WILL happen, absolutely as quickly as can be arranged, is that every, and I mean EVERY, trading company will shift their emphasis elsewhere, meaning out of NY, out of Chicago, out of the US. They'll trade crude on IPE and SIMEX, Eurodollars on EUREX and SIMEX, corn and beans in Tokyo f'Heaven's sake, coffee and cocoa on LIFFE, US bonds in half a dozen places...and every damned bit of that volume will come right straight out of the US. That'll be just fine for the economy, won't it?

But you dorks will love it, because the revenues you anticipate from your little Frankensteinian adventure WILL NOT MATERIALISE, and you'll get another chance to tax the kwap out of everyone with another idea from Dildoes 'R Us.

The good news here is only that the markets have SO much more clout than paretic academics like you and Tobin that your crackhead plan hasn't the slightest chance of making it into law, even incrementally.

And, by the way, I haven't yet even gotten to what your faex-like idea will do to the dollar middle-term AND to retirement accounts immediately, whether SS or otherwise, throughout the nation. Nor will I withdraw one single ad hominem remark in this message; intellectually, you deserve every one of them.

Your statement of 33% being revenue neutral BASED ON FAMILY INCOME may be right BUT Family and corporate adjusted gross income is less than 2% of the APT tax base

I see, you are telling us the APT base is 40 Times Gross Domestic Product?

Assuming this is true, upon whom is the tax economically incident?

Apparently you believe it is not the American citizen.

that's how the very low rates are possible.

The APT base is the cash dollar flow of the economy, (i.e. the same dollar taxed multiple times, exponentially increasing the tax amount take by government in the same manner as compount interest) as it is applied in the production and delivery of all the components throughout the chain of production that go into the delivery of product to the consumer.

What Real Rate of tax, as in Truth In Lending does the consumer ultimately pay???

The answer 33%+ as measured against the citizen's gross income, not counting the overhead costs on business attendant with the imposition of that tax that impacts GDP as well.

For all taxes must of necessity be incident on the American people.

Please look at the numbers and read the website carefully, there are alot of details there (www.apttax.com).

I have,

Then ask yourself should we just pass on a serious opportunity to pay 70 TIMES less Federal Tax than we have to?

I also recognise a snow job when I see one.

Because the tax is relatively so small much of it will be taken up by the market forces and bidding process.

And ultimately passed on to the American people in higher interest rates, financial fees, brokerage fees, passed to buisiness as it of necessity conducts it commerce to deliver goods an services to the American people at a markup of course for the costs incurred and the taxes paid.

That percentage markup on goods and services will be 70 times the the advertised rate of the tax, multiplied by the percentage cost factors imposed on business and finance for each dollar exctracted in the process as revenue to the government.

In the end the full burden upon the American citizen will be as great or greater than the income/payroll tax system we have now, and certainly much greater than the single time, single rate National Retail Sales Tax.

All with total loss of financial/banking privacy of both citizen and business that comes with a universal transaction tax.

This is the burden on the American citizen today:

We must . . . End Tax Slavery Now; Nov '97
by Jarret B. Wollstein

HOW MUCH DO YOU REALLY PAY?
     According to the Tax Foundation, in 1994 the average American paid 22.4% of his or her income in federal taxes, plus 11.8% in state and local taxes - 34.2% total.
     But that's just the beginning! Dr. James Payne of the University of California found that in addition to direct taxes we also pay huge, hidden taxes including:

Compliance costs - record keeping, monies spent on tax planning, computers and software purchased to fulfill IRS requirements, etc.
Enforcement costs - IRS audits, field investigations, service center corrections, criminal investigations, litigation, and forced collections.
Emotional, moral and cultural costs - families forced onto welfare, time and creative energy lost figuring out how to avoid taxes, etc.

     For every $1 we pay in direct taxes, we spend an additional $0.65 in compliance costs. And even that figure doesn't include the cost of import duties, license fees and other government regulations. For a typical U.S. family, the real cost of taxes and regulations is at least:
Federal taxes              22.4% of income
State & local taxes      11.8%
Compliance costs        22.2%
Regulatory costs         12.7%
70.1% of your income is now consumed by government

How much more, as well as total loss of financial privacy will a Universal Transaction Tax with 40 times the GDP number of transactions to tax be?

The answer is definitely more. In liberty, In privacy, and in Dollars.

No thank you.

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