Any change to a tax system that is revenue neutral will still fund the socialist programs that are destroying the nation.
Get rid of the income tax and FICA, and with those the welfare system.
Replace them with NOTHING.
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
This is a VAT without any brains. It taxes the same value multiple times as it makes its way through the production and distribution chain. As such, it favors the vertically integrated producer-distributor who starts with dirt and ends up with finished goods on the shelves of his own stores. He has no transactions in the middle, whereas the same good produced by a miner who sold to a smelter who sold to a fabricator who sold to a distributor who sold to a retailer has multiple layers of taxation on it. Left in place for a long period of time, such a scheme will lead to the formation of large vertically-integrated producers, which is not necessarily a good thing. That tends to stifle the adoption of new technologies and processes and whatever efficiencies they might create.
Umm riddle me this ratman; if you move all your transactions overseas, how do you use that money here at home? At some point money would have to move back into this country for you to use it, at which time the tax would kick in. Otherwise you would have to move overseas, and be subjected to even more progressive, socialist tax schemes.
I haven't thought through this proposal so I won't accept or dismiss it out of hand, but I like the idea that other people are starting to think about a better way of dealing with taxes.
Its not the taxes I mind paying (although the lower the better), I object to the all the crap, hoops, loopholes, and other .... stuff, in our overly complex tax code.
The IRS HAS TO GO!
I agree with your implication that taxation is NOT a contribution but a liability. But, I do not agree with the idea that the tax liability should be focused entirely on either the producer or the consumer because, in general, there is no reasonable distinction.
It would be pointless discrimination. Everyone contributes to and benefits from the economy. How they contribute or benefit is a valid basis for portioning the burden of taxes.
Morally, taxation should be strictly voluntary. But, since we have no choice in the matter, the burden should be thinly distributed throughout the economy so as to have the least impact on the economy as a whole. It makes no sense to focus the tax burden on either the producer or the consumer since that would have the worst impact on the economy as a whole.
Quick correction on post 84:
Everyone contributes to and benefits from the economy. How they contribute or benefit is an invalid basis for portioning the burden of taxes.
I agree on this tax. But, I'd be careful about making this argument. Conservative opponents of the FairTax are already making this claim in regards to the NRST. A month ago, Ramesh Ponnuru wrote a piece in the National Review in essence saying that the NRST is TOO efficient and painless, making it easier to raise taxes. He further states that a flat tax would exact enough pain on the taxpayer to prevent further tax hikes.
I love the NRST, but I've been thinking lately about an idea and I've mentioned it to you before: apportioning the tax bill among the states. You replied to my idea that that the Articles of Confederation had such a setup, and it was a failure. But that's not true. Under the Articles of Confederation, the Federal Government had NO authority to tax states and basically had to ASK for money.
So here's my proposal:
Funding for all non-defense spending will be apportioned among the states. Funding for Defense, Homeland Security, and border patrol will come from a tiny National Retail Sales Tax. Based on the 2003 budget and a 23% National Retail Sales Tax if the ENTIRE budget was funded by an NRST, The Defense/Homeland/Border NRST would only be 4 - 5%.
States will be able to collect their share of the tax bill whichever way they want, whether that be through sales taxes, income taxes, capital gains taxes, property taxes, or some ingenious method we haven't even thought of. Over time, states will demand that those federal programs the state can provide itself be eliminated. And there you have it: A hybrid, NeoFederalist Tax policy that shrinks the size of the Federal Government.
Morally, taxation should be strictly voluntary.
Agreed, even where taxes cannot be "strictly" voluntary the final excercise of when and how much tax is taken should be up to the discretion of payer of the tax whenever possible to arrange.
I submit that payment of taxes coincident with the purchase of retail goods provides the greater measure of control to the individual consumer/voter, who in the end is the final payer of all taxes as they cascade through the economy. Removing the excercise of that control from the individual by burying the tax in upstream transaction out of the view of the general electorate is a bad practice leading to expansion of government for lack of oversight.
Everyone contributes to and benefits from the economy. How they contribute or benefit is an invalid basis for portioning the burden of taxes.
In which case the primary distinction between producer and consumer is irrelavant and the distinctions should be based more with empowerment and convinience in favor of the individual as opposed to the efficiency or convenience of government.
Producer side taxes(payment on incomes prior to allocation for saving & expenditure) gives first allocation resources to government over the individual and tend to hide the burden of the tax from view of the electorate where the are collected upstream from the individual at business/corporate level.
OTOH consumer side tax payment ideally occurs with expenditure at the point most visible to the electorate where the measure of cost of government benefit is most easily made. The key is to assure the visiblity and perception of the tax imposed such that the electorate is fully appraised of the burden laid in respect to any benefit demanded of govenment.
Each time government is able to hide a large proportion of taxation behind the corporate veil not in direct view of the electorate government becomes less accountable to the electorate for largess and inefficiency of its activities.
It makes no sense to focus the tax burden on either the producer or the consumer since that would have the worst impact on the economy as a whole.
From my viewpoint that makes no sense at all, anytime government removes option and visibility from the electorate(i.e. individual consumers) as a whole it decreases the capacity for exercise of discretion on the part of the individual. Placing taxation on the producer side reduces the capacity of the individual to chose between investment/savings versus consumption.
The lack of invesment & saving places the individual in a position of greater dependancy upon government to provide for future benefit at the cost of the individual's independance and ownership of property which would provide for future retirment needs out of ones own resources.
Production side taxation increases the power of govenment over individual exercise of discretion and ablility to provide for his own future. Consumption side taxation allows the individual first option of where his dollars are best allocated for his individual circumstance whether that be savings/investment or consumption of goods and services. A consumption tax favors investment and savings from which people can be indendent of government largess.
This has to be a record -- I posted on this thread six weeks ago!
Anyway, the dollars never have to come back to the USA. The dollar is a global currency. Dollars have been deposited overseas since WWII. Foreign transactions are settled in dollars all over the world.
The strong nations since the War (Germany, Japan) built their reserves in dollars, not gold. Same now with India and China and South Korea. The Dollar is as much a part of American Global Power and influence as our military and our global brands.
Why is the Dollar so strong? Bewcause it's the currency of our free country -- free politically, free financially. Taxing transactions in this country would be an unmitigated disaster, and nobody with any knowledge of our economy or international finance would seriesly consider it.
Under the Articles of Confederation, the Federal Government had NO authority to tax states and basically had to ASK for money.
Not quite true, Continental Congress had the authority to lay tax directly on states and demand payment by a date certain:
"All charges of war, and all other expenses that shall be incurred for the common defense or general welfare, and allowed by the United States in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several States in proportion to the value of all land within each State, granted or surveyed for any person, as such land and the buildings and improvements thereon shall be estimated according to such mode as the United States in Congress assembled, shall from time to time direct and appoint.
The taxes for paying that proportion shall be laid and levied by the authority and direction of the legislatures of the several States within the time agreed upon by the United States in Congress assembled."
The federal government just had no effective means beyond civil war to enforce a tax on the state that is adament about not paying, as a point of fact neither does the Constitution for that matter. That is the primary reason why authority was granted to Congress under the Constitution to lay a taxes with respect to the individual bypassing the Articles' direct taxation of the states based on the assessed value of property in the state.
refer: Federalist #21:
refer: Federalist #45:
States will be able to collect their share of the tax bill whichever way they want, whether that be through sales taxes, income taxes, capital gains taxes, property taxes, or some ingenious method we haven't even thought of. Over time, states will demand that those federal programs the state can provide itself be eliminated.
Actually there is no requirement for Congress to allow the states to collect the tax in any manner of their choosing under the Constitution, though the direct taxes laid by Congress under the Constitution usually did do it that way, should the state fail to meet payment the National Government made provision to collect the tax from the individual property owners itself.
Refer:
United States Statutes at Large
Thirteenth Congress Session. I. Ch. 16. 1813
Chapter XVI. An Act for the assesment and collection of direct taxes and internal duties.(a)
If that happens, residents of that state (or states) will be subject to a direct tax imposed by Congress equal to that state's burden.
That then becomes the key issue. For just as in the 1813 direct tax provision above, it is the landowner that would get stuck with the ultimate tax bill which requires an infra-structure of federal surveyors/accessors in place to assure the capacity of the federal government to collect tax in that manner. A point forseen and echoed from the founders.
- "A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land."
Any source of revenue, other than property tax to the national govenment, would require a parallel effort on the part of the national government to track individual incomes etc. for potential collection of tax due requiring individual income reporting and an IRS like capacity. A post-hoc tax of such a nature would not be an acceptable solution in such circumstance.
The NRST provides for the potential of default by a state by assuring the tax is specific (a retail sales tax ) with an infrastructure already in place and makes provision for the national government to step in as administrator/collector when a state is shown to be in default. This avoids the the need of a large bureau or imposition of a federal tax upon property.
"States will be able to collect their share of the tax bill whichever way they want, whether that be through sales taxes, income taxes, capital gains taxes, property taxes, or some ingenious method we haven't even thought of."
That is an interesting perspective. As a practical matter, though, it is unlikely that any individual state would attempt to continue taxing income if the federal government dropped its income tax. Reproducing an Internal Revenue Code would be a daunting task for any state.
Having said that, I do think that it is healthy that we keep an open mind about tax reform proposals. A friend of mine who is an avid FairTax supporter and a tax reform veteran told me that he was a flat taxer when it first came out because it was the best alternative to our horrid system (of course, it's a lot worse now than it was then).Then Billy Tauzin introduced his initial sales tax proposal and my friend switched his allegiance, since he considered it better. Then the FairTax proposal was introduced and he supported it because he considered it superior to the other two. He told me that if someone comes out with a better plan tomorrow, then he will support it.
My reservations about this plan are
(1) as other posters have pointed out, it would be largely hidden from taxpayers' view. As we all have learned, the consumers or customers at the end of the supply chain are the ultimate taxpayer, regardless of where in the supply chain the checks are written,
(2) this doesn't eliminate the bias in our current system against savings and investment, nor the bias against US producers,
(3) I don't see how the tiny rate proposed would be revenue neutral. In the family example given, it appears that the family's tax burden would drop dramatically (if you don't count cascaded taxes). Even if you do count them, it would seem that they would still decrease markedly. Don't get me wrong, I am certainly not opposed to tax relief for American families. However, if average families get a huge decrease in taxes paid, that revenue must be made up somewhere or the deficit explodes. I did not see the term "revenue neutral" used in the article, so that makes me suspicious as well.
Having said all that, I am willing to keep an open mind at least until I see some reputable economic studies on this proposal. There is no such thing as a perfect tax system. However, without economic studies, any FTR proposal is a huge gamble. Even with economic studies, there is a certain element of risk. However, the defenders of the status quo fail to acknowledge the enormous risk of sticking with the current system until it implodes of its own enormous weight.
One other point. I have seen the same resistence to change on this thread that has become all too common on other tax threads. The comment about this proposal being like throwing sand in the gears of the economy is one example. At the rate proposed, I doubt that would happen at all. As I mentioned above, I have reservations about the proposed rate, but that is a separate issue. At the rate proposed, or even 2 or 3 times that rate, I doubt that this tax would generate the kind of avoidance that some of the other posters on this thread envision.
The enemy is the current system. If we commissioned a panel of leading experts to come up with the most inefficient and economically destructive tax system possible, they would be hard pressed to top the current one. Anyone who disagrees with that clearly doesn't understand the issue very well IMHO.
Sorry for the length of this post, but I had to get this off my chest.
Umm they do if you want to spend them here. Food, Clothing Housing, Bills, etc...
Absolutely.
Likewise, if individuals don't like the choices that Congress makes in spending their now visible-and-painful tax dollars, they can quit spending their hard-earned discretionary dollars and thereby quit sending them to Congress.
In either case, Congress would be accountable to the taxpayer, instead of the other way around.
It's a beautiful thought, people having so much power to tax themselves (or not).
Oh you know it'll never happen.
Any change to a tax system that is revenue neutral will still fund the socialist programs that are destroying the nation.
Get rid of the income tax and FICA, and with those the welfare system.
Replace them with NOTHING.
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