AUTOMATED PAYMENT TRANSACTION TAX
Originally published in peer reviewed journal, Economic Policy, Oct 2000
Edgar L. Feige, PhD, Professor Emeritus in Economics,
University of Wisconsin – Madison
THE ONLY REALISTIC WAY TO DEAL WITH THE MASSIVE DEFICITS AND NATIONAL DEBT OF THE UNITED STATES 2010
CRITICAL FACTORS AND PRECEPTS:
1. Replaces ALL Federal personal and corporate income tax; as well as, Social Security, Medicare, Cap gains, Estate, and Excise taxes and fees. Mandatory total Replacement, not additional, validates logic.
2. Utilizes the largest possible tax base – All US financial transactions (2010 estimate at $1 Quadrillion – APT arbitrarily chooses to use only half of theoretical base to disarm petty arguments and accommodate behavioral changes). Thereby, all taxpayers are afforded the lowest possible rate. For 2010, the balanced budget revenue requirement is $3.55tr. The APT rate required is 0.35% of each side of every transaction or 3.5 dollars per $1000. The gov’t receives both sides, or 0.7%.
3. APT Tax is automatically and immediately collected as credits and debits flow through the robust financial computer system where every entity handling financial accounts would be required to run software (already exists) and be compensated for doing so. Tax would be “trimmed” from each transaction and anonymously deposited into a gov’t pool account.
4. No tax returns. No exemptions. No deductions. Rebates for poverty NOT handled by tax system, but through welfare agency as separately determined by Congress.
5. Government transactions at all levels would not be taxed, nor would inter – bank or Fed – bank transfers. Banks and other financial institutions as account holders would be provided software to assess the tax and would be paid a fee for doing so. Banks would be taxed on income items such as interest, fees and funds received from trading activity for their own account.
1. Individuals – lowers taxes 10 TIMES. A family earns $100K, spends and/or saves $100K, and churns investments worth $100K in a year. They will pay $1050 in TOTAL Federal taxes almost without notice as year progresses. Even if all the dastardly businesses charged them both sides of every transaction the total APT tax is $2100. This is instead of $15K income tax and $7.6K SS and Medicare for a total of $22.6K.
2. Business – saves 15 to 20% in direct taxes and compliance costs (per Fair Tax brothers). Sales gains as consumers have more to spend. Tax cost is so small compared to savings that the superficial supply chain “cascade” argument is nullified. Let’s see, 20% saved, then 0.35% added to supplies and 0.35% added to sales – net savings 19.3% – how can that “cascade”. Investment capital attracted by lower taxes than anywhere on earth. If a business decides to pass tax through to consumer then there is a one time addition of 0.35% to price (much less than inflation occurring every year) or one could market the fact that they wave all Federal taxes to their customers (likely choice)
3. Government – immediate electronic collection of taxes with the only compliance/enforcement effort concentrated on the biggest and half foreign transactions instead of ruining the lives of little people. Estimated savings is $500 billion.
1. VAT – sales tax, add-on to all other taxes, very regressive.
2. Fair tax – very high addition to retail sales which are critical to economy, no assurance prices would be reduced by corporate savings, double taxation of money saved during old system, definition of “used goods” would be source of great abuse and probable source of black market activity and manipulation to attain “used” designation.
3. Flat tax (Forbes and Weyden-Gregg) – IRS and much of code remains due to definition of income requirement, does nothing for SS and Medicare.
ARGUMENTS MOST FREQUENTLY ENCOUNTERED:
1. Supply chain “cascade” effect — favorite mantra of Fair Taxers when debating APT — addressed above.
2. Market liquidity – legitimate, but there are many markets with small taxes on securities that doesn’t seem to influence trading ie. India’s very successful 1% security tax. Computerized, hyper-trading may not be good for the nation and that additional liquidity is not essential since it didn’t exist just a few years ago. Day traders should not determine tax policy for the other 100 million taxpayers.
3. Accountants and IRS employees out of work — talking to accountants they could care less (maybe they haven’t studied APT well). Taking down the IRS – priceless.
4. With taxes so low, people would not pay attention to Congress – please, I promise to pay attention.
Synopsis by Bill Hermann, MD
National Director, APT Tax Project. www.apttax.com 713-242-3773