Posted on 08/14/2004 3:06:58 PM PDT by Licensed-To-Carry
Is it possible to have a system of taxation which is simple, efficient, progressive, and revenue neutral replacing all those taxes listed above? As it turns out, Yes.
By capitalizing on financial data processing technology, it is possible to create a tax code for the 21st century-- one that is astonishingly easy for all citizens to understand, that is easy to administer and to comply with because it eliminates the need to file tax or information returns. The system, developed by University of Wisconsin Professor of Economics Edgar L. Feige, is known as the APT or Automated Payments/Transaction Tax.
You can find Professor Feige's original papers detailing the Automated Payment Transaction (APT) tax by clicking the links to the left. The papers describe a simple plan to replace our current complex system of federal and state income, sales, excise and estate taxes. It's not rocket science; it's actually just simple arithmetic.
In order to raise the same amount of revenue as our current tax system, a "revenue neutral" APT tax would impose a single tiny tax rate on each and every transaction in the economy. All deductions and exemptions would be eliminated. By declaring a "zero tolerance" policy for any exemption, we wipe out every special interest loophole that now riddles our overly complex tax code. Since the volume of all transactions is estimated to be 100 times larger than the current tax base, the flat tax rate needed to raise the same amount of revenues is just a hundredth of the current average tax rate of roughly 30%. So if transactions stayed at their current level, the APT tax rate would be three tenths of one percent (0.3%) on each transaction. Even if total transactions fell by 50%, the revenue neutral APT tax rate would only be six tenths of one percent (0.6%) split equally between the buyer and seller in each transaction so each would pay 0.3%. Feige details how the replacement of our current tax system with an APT tax could save the government and its citizens as much as $500 billion annually by eliminating the compliance, collection, enforcement and inefficiency costs of our current tax system. Additional savings would accrue society in general, which are impossible to compute. Just think of all those beautiful trees that will be left standing when we stop printing the 17,000 page Tax Code and the millions (maybe billions) of copies of forms with instructions still being used at both federal and state levels.
How would it work? Consider a family with an annual income of $60,000, paying $20,000 in interest and mortgage payments on their house and spending $40,000 on all other items. The family has total transactions of $120,000. Today that family would owe roughly $20,000 in total taxes. Under the APT tax, with a rate of 0.6% they would pay $180 (.3% x $60000) on their income receipts and $180 on their expenditures for a total tax of $360. Their employer would pay $180 tax on the income payment, the mortgage company would pay $60 on its receipts and the merchants receiving the family's $40,000 of other expenses would pay another $120 in taxes. In total, the government would receive $780. And all the taxes would be automatically assessed and paid without filing tax returns.
How then does the government collect enough taxes to pay its bills? Most of the revenues would be collected from the massive volume of stock and bond trades and foreign exchange transactions none of which are now taxed. One might be concerned that imposing taxes on these types of transactions would stifle economic activity in these critical areas, however, the tax is so small it would be dwarfed by the simple fluctuations in price that typically occur during the trading process. Although "day trading" and short term foreign exchange transactions will certainly decline, the reduction in these "hot money" transactions are only likely to reduce speculative market activity, thereby reducing the volatility of prices in these markets.
Although every voluntary transaction is assessed the same low tax rate, the APT tax achieves equity and fairness because the wealthiest portion of the population executes a disproportionate share of financial transactions, whereas the poorest members of society engage in relatively few financial transactions since they have so much less wealth to manage. So progressivity is achieved through the skewness of the tax base rather than through a progressive tax rate structure.
Practically speaking, how will the APT Tax work? Every bank, brokerage, or other financial account established by a person, corporation or other taxable organization will pay 0.3% on ALL funds moving IN OR OUT of that account. The tax would be automatically transferred to a federal government tax collection account in the same institution. This will be true for stock, bond, options, and futures traders and investors; foreign citizens, companies and governments exchanging their currency for US dollars; a couple buying a new car (no more 6% sales tax, instead 0.3% APT tax); and, a teenager buying movie tickets with a credit card. The movement of funds is taxed and collected immediately without recording who or what was the source of funds or the recipient. This automated system would totally eliminate the need for filing tax returns and information returns, freeing individuals and businesses of enormous costs of tax compliance and greatly reducing the government's costs of collection and enforcement.
How to move forward?
Can we as a people take such dramatic economic action? We did take radical political action for the common good in 1776 and 1787. Now its time to finish the job on the economic side. So spread the word! Maybe some national figure will realize the power lodged in an idea with virtually universal benefit and agreement. What can you do? First, familiarize yourself with the details of the plan and then tell your friends and bring it to the attention of your elected representatives. We also welcome your comments and suggestions, which we will try to post under appropriate headings in our tax blog on this website. We want to thank Professor Edgar Feige of Wisconsin for his revolutionary concept and research. This is a totally non-partisan, informational website. Hopefully our fellow citizens will recognize the substantial advantages described and demand fair and thorough further research be performed to determine how the idea could be improved and implemented? For comments and questions please email us at: director@apttax.com or participate in our online community and discussion forum by clicking here.
William J Hermann, Jr. M.D. Director
Say what? Interesting math. Oh. You tax everything twice, eh...and what about savings? Pension plans? Medical insurance? Employer-matched 'voluntary investment' plans?
--Boris
it's so small a rate who cares.....let them
sounds like the dreaded VAT.
tax at every transaction that occurs related to production of goods and services.
"I think there was something about when cash is deposited into or withdrawn from any financial institution you would pay the .006% tax. But I guess as long as you use cash between two people there is no tax, at least no way to collect it."
That's one problem. Suppose you cash a check for cash (0.006% tax) and then you spend the cash for a burger (another 0.006% tax) but if you write a check for the burger, then you only pay the tax once.
A VAT on steriods.
Remove people's perception of the cost of government and there are no limits to growth of government.
If you would like to be added to this ping list let me know.
John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax:
H.R.25, S.1493
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 retail sales tax to be administered primarily by the States.Refer for additional information: http://www.fairtax.org & http://www.salestax.org
Does this plan include every single transaction - even those involving a person transfering their own funds from one account to another? The way I read this article, it sounds like it is.
For example - if a person transfers money from their savings account to a checking account in the same bank in order to write a check. If so, that would mean that the person's funds would be taxed once when the funds were deposited into the savings account, once when they were removed from the savings account, once when they were deposited into the checking account, and then once when the check is cashed.
This doesn't seem quite right to me...but that's just my 2 cents.
That was my first thought. I would buy a bar and not accept checks or credit cards....cash only.
The money would never see a bank.
I'll take that back...I would let trusted customers run a tab and then pay that tab with goods or services (a barter system). Tires, food, gold, ammo....sex.....all could be negotiated, acceptable forms of payment that are not subject to the transaction tax.
So far, we know that income tax is bad, not many people are serious about replacing it with a sales tax, and now this transaction tax seems likely to flop as well. So, why not admit we were too stupid to stick with a system that worked, swallow our pride and go back to tariffs and other indirect taxes?
This scheme is just a variant on what used to be called the ''Tobin tax'', dreamt up by another ivory-tower academic. I believe he was awarded the Nobel prize, not sure -- if so, there is much to commend the policy of straight-out ignoring any ''economist'' who wins that prize.
A couple of fellow traders and I kicked this idea around about 5 years ago. The only rational action we could figure out, in the event of the institution of such a tax, was to leave the country. Between the number of newly-minted cash/barter transactors, as per this thread, and those who will vacate, I wonder how far off the mark this per-fesser will be on his revenue estimates.
This topic illustrates perfectly the difference between the staticists and the dynamists; how in the world the staticists still believe that people will NOT change their behaviour in response to changes in the tax regime is utterly beyond me.
I did not say "value of a transaction:" I spoke of transaction costs.
When you buy stocks, brokerage fees (and slippage if you are a trader) is a transaction cost. A $30-book you buy may costs you $35, if shipping --- a transaction cost --- is included.
I heard of a "1% transaction tax" some years ago; developed by a professor in New York. Virtually the same thing. EVERY transaction is taxed at 1%. No income tax, medicare tax, no social security tax, no gasoline taxes, no taxes on tobacco or alcohol or any sales taxes......nada, zip, zilch. Just every transaction taxed at 1% for the government.
The amount of revenue generated is STAGGERING.
That point is still valid, however: the consumption levels of the one with $50B is approximately the same as of a person who has only 1B. Since consumption is not proportional to wealth, the use of it as equity measure is problematic.
I sent this to everyone I have in government.....great idea
You shouldn't type while looking over your shoulder. Nor do I need admonitions. If you feel under-appreciated and have a need to command someone, get yourself a dog.
If you have something to say on the SUBJECT at hand, please do so.
A better idea would be a true flat income tax with no deductions. Simple, easy to enforce, and drastically fairer than the tiered "soak the rich" scheme we have now.
Even better yet would be a simple National Retail Sales Tax. By default, it gives control of taxes to the individual, the collection infrastructure is in place nearly everywhere, and foreign-made goods are taxed at the same level as American-made goods, meaning that instead of unfairly taxing American labor as an income tax does, it spreads the load to all the world's labor.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.