Automated Payments/Transaction Tax?

[Dr Mordrid]

This might be one of the smartest ideas to come down the pike in ages;

Link....

Original paper (PDF)

Automated Payments/Transaction Tax

Is it possible to have a system of taxation which is simple, efficient, progressive, and revenue neutral replacing all current taxes? The answer, according to University of Wisconsin Professor of Economics Edgar L. Feige, as it turns out, is yes.

Feige believes that by capitalizing on financial data processing technology, it is possible to create a tax code for the 21st century that is easy to understand, that is easy to administer and is easy to comply with because it eliminates the need to file tax or information returns. The system, developed by him is called the APT or Automated Payments/Transaction Tax.

In short, the APT tax would impose a single tiny tax rate on each and every transaction in the economy. Since the volume of all transactions in most Western economies 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.

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.

[Gurm]

And NOBODY WOULD CARE about 0.3%, that's the beauty. Now try selling it to the government.

[cjolley]

It would get a lot of people interested in cash again.
But also savings, which would be a good thing.

It is also higher than it sounds.

Deposit pay check .3%
Pay for Latte with credit card .3%
Pay credit card balance .3%

So the real tax rate would be 3x the stated rate for a normal expenditure.

Still, fairer than a flat income tax, but simpler than what we have now.
Definitely worth looking into.

However:

...without recording who or what was the source of funds or the recipient.

Good luck with that idea.

[Umfriend]

And NOBODY WOULD CARE about 0.3%, that's the beauty. Now try selling it to the government.

Actually, _anyone_ who is part of a transaction where he/she is not an end-user of the product/service would care. This is in fact close to a Value-added-tax without the rebate for intermediaries and hence a cost-increasing tax.

End-users would experience *only* a 0.3% sales tax but on increased prices as each step in the production and delivery proces would suffer a 0.3% compounding increase in price.

It would indeed give a new meaning to the "cash is king" expression. I'd prefer my wages in cash as well and pay my rent likewise. I need to think about this a bit but offhand I'd say it is a bad idea.

[Gurm]

Actually, _anyone_ who is part of a transaction where he/she is not an end-user of the product/service would care. This is in fact close to a Value-added-tax without the rebate for intermediaries and hence a cost-increasing tax.

End-users would experience *only* a 0.3% sales tax but on increased prices as each step in the production and delivery proces would suffer a 0.3% compounding increase in price.

It would indeed give a new meaning to the "cash is king" expression. I'd prefer my wages in cash as well and pay my rent likewise. I need to think about this a bit but offhand I'd say it is a bad idea.

I dunno. The loss on my rent would be $4.50, not too terrible in my mind. The loss on our combined monthly paychecks would be less than $25. Of course they'd likely RAISE rent by a few bucks, right? Because services cost money? Well, that's easy enough. But honestly the proposal is that NOBODY raise costs. Why? Because although they lose $4.50 on the rent... and although I lose out here like everyone else... If they stopped taking the $2500 a month out in taxes... that ought to MORE than cover it, no?

[cjolley]

... But honestly the proposal is that NOBODY raise costs. Why? Because although they lose $4.50 on the rent... and although I lose out here like everyone else... If they stopped taking the $2500 a month out in taxes... that ought to MORE than cover it, no?

I laughed so hard at that coffee came out of my nose.

PS As someone who collects taxes for a living, I will tell you that there is a population out there who will do ANYTHING to avoid even small tax costs.
Including spending more than the tax amount to avoid it.
It's a psychological thing.

[Umfriend]

Moreover, there is a huge difference between (1) individuals (where the ratio of wire-transfers to income will not deviate a lot from TWO, as in 2.0x being wages received and money spend or transferred to a savings account), (2) companies, where the ratio of revenue+expenses over actual profits can easily be TWENTY, as in 20x, and (3) financial institutions which typically shift funds around like, well, in huge proportions. So _your_ tax bill may well decline a lot but, again, the prices you'll pay for goods and services will increase a lot as well. On top of that, you _will_ find changes in behaviour and guess for whom that'll be easiest? Right, financial instituitions and corporations, eroding the tax base, causing who exactly to bear the consequences? That'd be, erhm, you and me.

[az]

Moreover, there is a huge difference between (1) individuals (where the ratio of wire-transfers to income will not deviate a lot from TWO, as in 2.0x being wages received and money spend or transferred to a savings account), (2) companies, where the ratio of revenue+expenses over actual profits can easily be TWENTY, as in 20x, and (3) financial institutions which typically shift funds around like, well, in huge proportions.

Lots of this shifting is done to avoid having to pay taxes now. Not nearly all, but quite a lot.

So _your_ tax bill may well decline a lot but, again, the prices you'll pay for goods and services will increase a lot as well.

So net prices will increase, but gross prices (we always pay VAT here, and prices are always shown as gross, not net) would stay about the same.

On top of that, you _will_ find changes in behaviour and guess for whom that'll be easiest? Right, financial instituitions and corporations, eroding the tax base, causing who exactly to bear the consequences? That'd be, erhm, you and me.

The only way I see to circumvent this is to use cash. This is neither practical nor cost-effective for larger amounts or lots and lots of small amounts of cash, so individuals will be the only ones even having a realistic option of doing it. And very small businesses like corner shops.

[cjolley]

...
The only way I see to circumvent this is to use cash. This is neither practical nor cost-effective for larger amounts or lots and lots of small amounts of cash, so individuals will be the only ones even having a realistic option of doing it. And very small businesses like corner shops.

Accounting is much more complicated than that.
Being government, we don't have to pay taxes. But we have lots of accounts and the amount of money transfered around for one reason or another is very large.

Do you think GM has only one bank account? Most likely thousands.
An organization that keeps it's money in many accounts and shifts it around as transfers for accounting purposes would need to consolidate everything into one account and just do the transfers inside their books.
This would save them a huge amount in taxes.

[Umfriend]

Lots of this shifting is done to avoid having to pay taxes now. Not nearly all, but quite a lot.

You actually know this for a fact? Source please? I call BS. Just look at a regular bank acting in the forex markets or market makers in the option markets. Huge volumes going on, bona fide. Same with regular companies. Just check "Revenue", "Operating costs" and "Net Profit" and you will have the lowest ratio possible.

So net prices will increase, but gross prices (we always pay VAT here, and prices are always shown as gross, not net) would stay about the same.

No, you misunderstand. You see, VAT is an end-user tax that does not raise the cost-price. The shop where you buy takes VAT from you and pays that to the government. That shop also pays its supplier VAT. Your shop however may offset what it paid to its supplier with what it charged to you. This way what is actually taxed is the value of the product (or service) less its costs: the "value added". In this APT however, that rebate does not exist. It is therefor a cost-price-increasing tax.

The only way I see to circumvent this is to use cash. This is neither practical nor cost-effective for larger amounts or lots and lots of small amounts of cash, so individuals will be the only ones even having a realistic option of doing it. And very small businesses like corner shops.

I'd say it's far easier for financial institutions to devise structures to save on this than for individuals. Remember, this tax would be based on transfers of money. Not, for instance, on exchanges of one security for another. I'm pretty sure some sort of mutual-fund-for-institutionals would arise quickly. And going off-shore may well be an option as well. Firms could simply "merge" or "join-venture" to avoid actually monetary transfers.

The more I think about it the worse I believe this idea is. The actual issue is that transfers of funds simply do not have a real relationship with economic value. It does not, in any way, relate to income, ability to pay, profitability, use of economic resources or anything. It's just plain stupid. It may be "simple", but that is taxing each individual for $10k a year as well. My god, I can;t believe how stupid this proposal actually is. He must be quite an athlete as well!

[cjolley]

OK smurf, tell us what your really think of it


I don't think it's that bad an idea.
But big organizations will HATE it.
So it will never considered, let alone passed.
Interesting idea though...

[spadnos]

The thing people forget is that in the end, there is exactly one source of all tax money: people.

If you tax businesses more, they raise their prices to cover the additional costs, and the consumers pay (people).

If you cut taxes on businesses and raise them on individuals, then the people pay. (probably twice, since companies are much less likely to reduce prices when costs go down than they are to increase prices when costs go up).

It doesn't matter how many companies are in the chain, it eventually boils down to people. If it isn't the customers, then it'll be the shareholders.

There is no way to raise the same amount of tax without it coming out of the pockets of the people eventually.

- Steve

[Umfriend]

@Chuck: I am not sure. I think big business would consider the idea silly but, most likely, easily worked around and so support it.

@Spadnos: No, raising "business" tax (which I take to mean corporate income tax) does not result in firms raising prices. That tax is very hard to pass-through to consumers. It does, however, result in less investments which lessens growth.

And yes, it _does_ matter how many firms are in the chain if considering a cost-price increasing tax. You are right that, at the end of the day, it boils down to people but that does not refute my statement: replace "firms" with "people" and you should readily agree that the "people" in the chain would prefer barter so as to avoid the tax and that more tax would be saved if more "people" were in the chain. QED.

It is, obviously, true that you can;t make money or raise taxes out of nothing. It is also true that the way one raises taxes does in fact have consequences for actual output of the "people" (economy). You *can* raise the same amount of taxes and **** the economy real good up the ass.

[spadnos]

@Chuck: I am not sure. I think big business would consider the idea silly but, most likely, easily worked around and so support it.

@Spadnos: No, raising "business" tax (which I take to mean corporate income tax) does not result in firms raising prices. That tax is very hard to pass-through to consumers. It does, however, result in less investments which lessens growth.

First, I wasn't talking about an increase in business income taxes, but the cost-increasing tax proposed. I also mentioned that if the customers don't pay the price, investors will. The company would post lower revenues and pay less dividends. Privately held companies would just be worth less to their owners. The company would have additional pressure to keep wages and benefits low. The list goes on, but in the end, someone will pay.

And yes, it _does_ matter how many firms are in the chain if considering a cost-price increasing tax. You are right that, at the end of the day, it boils down to people but that does not refute my statement: replace "firms" with "people" and you should readily agree that the "people" in the chain would prefer barter so as to avoid the tax and that more tax would be saved if more "people" were in the chain. QED.

Oh sure - lots of people would rather pay 3x as much to a private interest (lawyer / accountant) than they would pay in tax.

It is, obviously, true that you can;t make money or raise taxes out of nothing. It is also true that the way one raises taxes does in fact have consequences for actual output of the "people" (economy). You *can* raise the same amount of taxes and **** the economy real good up the ass.

I would never dispute that

- Steve

[Umfriend]

It appears I have misunderstood your previous posting then. I must say I am surprised. I ussually never ever misinterpret anything but, he, there is a first time for everything. Sry.