[APT Project Director]

Hello again -- bet your glad to hear from me again. I want to make several points on the stellar thread.

Regarding the famous "cascade effect". Every OEM manufacturer will experience the embedded tax reduction a la NRST of about 20% of the cost of each product. So when they are charged the 0.5% (both sides) back the saving will be 19.5% to the extent that the market will allow they will put that net in their collective back pockets. That's a savings cascade not a cost cascade.

I have not studied the turnover tax referred to but there must be considerable differences. Possibly the interactions (piling on) with other taxes may explain the failure. The fact is there are existing, successfully operating transaction tax systems functioning as add-ons today and every day in Brazil for example. They have their problems but according to a resident economist they are NOT related the the transaction tax with which they are pleased. A few other South American countries are having similar experiences.

Regarding the effect on the security and derivative markets.
The expansion of the tax base and shifting of burden substantially away from the critical engine of our economy the consumer will do nothing but spur business along with the tax and compliance savings business will experience. The revenue and earnings increases will expand the stock prices and your 401k plans NOT decimate them. True use of futures by people hedging production will continue but traders will be hurt. Floor traders and market makers are involved in internal transactions that would be protected from taxation.
When they remove funds to their personal or corporate accounts they will be taxed at 0.25%. The universal benefits that virtually everyone will realize under APT cannot hinge on a futures traders smile. Let the speculators move to other markets and experience their own versions of security taxes of which there are many. Further if they are looking for liquidity and volume they will be hard put to find it elsewhere. I can hear SAJ calling for my head already but that will be unrealistic, very loud, rhetoric. The major investments will flourish and there will be plenty of savings/investment capital to build new companies.

Now regarding NRST, I see five major problems:
1. It aims 100% at heart and engine of the economy with the potential for major price increases with wishing and hoping the market will force price reductions commensurate with tax and compliance cost savings.
2. It is the most regressive form of taxation even with the rebates.
3. It fully double taxes after-tax savings and accumulated, after-tax home equity that millions of Americans look to provide retirement source of funds for living.
4. The definition and compliance burden of differentiating used from new products is highly susceptable to evasion schemes and black market activity. Are taxed goods going to be "stamped" kinda like King George did awhile back which I believe we all found revolting?
5. There will remain a substantial collection and compliance bureaucracy, possibly moved to the state level, but they can be just as nasty or worst then the IRS especially when their ranks are expanded by Federal grants to states to provide these functions.

There -- that oughta spur another 400 posts. Could we keep them respectful and civil? -- probably not.

[Brian_Winters]

I have a question about the whole cascade thing that I'm reading about here. How is inflation different than a transaction tax? We think really good inflation is about 2-3%, right? So this should mean that in order to receive the same income people will have to charge 2-3% more money for whatever people want to buy. So if the claim is that a .5% transaction tax will cripple the economy, why wouldn't an annual 2-3% inflation rate simply kill it off?

Isn't the reason why inflation hasn't crushed us is because people's incomes are increasing by about the same rate as inflation? So if prices went up 2% because of inflation but people's income went up by 2% also, people should be able to buy the same amount of stuff.

Because people know inflation will occur, they get wage increases that should at least cover inflationary costs. So when people see a .5% transaction tax coming, they would demand a .5% increase in income, wouldn't they?

So again, I'm not seeing a difference between inflation and a transaction tax. Whether it's because of inflation or because of a tax, both are going to increase prices. So an increase in wages of .5% would negate or at least severely lessen this cascade just like an increase in wages of 2% would to an inflation rate of 2%.

If anyone could explain the difference between having 2% inflation and a .5% transaction tax, and just having 2.5% inflation that would be very helpful.

[ancient_geezer]

So when they are charged the 0.5% (both sides) back the saving will be 19.5% to the extent that the market will allow they will put that net in their collective back pockets. That's a savings cascade not a cost cascade.

Baloney, they are being taxed on their circular capital flows, that multiplies the effective rate as measured against sales revenues tremendously.

I have not studied the turnover tax referred to but there must be considerable differences.

Turnover taxes are applied to all corporate transactions, based on the full value of the transaction.

Possibly the interactions (piling on) with other taxes may explain the failure.

All it takes is the business passing the tax on to their customers via price of their product, as the must do to maintain profitability. The tax thus compounds as product is passed from business to business do the chain of production. It makes no difference the nature of the business, whether manufaturering or goods, service, finance or exchanges markets. A turnover tax is a turnover tax.

This is description of how a turnover tax works, there is no difference from your transaction tax, with the exception that your transaction tax taxes both sides of every single cash transfer which make it worse than the original forms.

More on the ubiquitous transaction tax (i.e. turnover tax; aka general sales tax)

 

http://old.ucipr.kiev.ua/english/ers/35/3507.html

Problems of and Prospects for Alternative Sales Tax in the Ukrainian Taxation System

 

By Valentyn Tregobchuk, doctor of economics, professor, head of the department for resource potential at the Economy Institute of the National Academy of Ukraine;

*** SNIP ***

From the theoretical viewpoint, the sales tax and the VAT are analogous, since they both are indirect taxes on consumption and represent different forms of the same tax collected at each stage of commodity production and turnover. The only difference between those taxes is tax article, to which tax rate is applied. In other words, the sales tax is levied on gross turnover and the VAT on net one. Though, in the practice of application of sales tax the above difference engenders numerous negative consequences the economic theory has not dealt with since early 20^th century, when their major drawbacks related to the nature of tax article became evident.

As the sales tax is levied on the whole sales value, inclusive of raw materials cost, should this tax be applied in the event of several production and turnover stages, it will generate a cumulative effect or that of sequential growth of tax burden. Proceeding from the above, tax burden depends on the “distance” from the manufacturer to the consumer. The higher is value, including wages and profit, added by a company operating at the initial production stage, the stronger is the cumulative effect. Hence, in this respect, the nature of tax burden is uneven and sporadic, for it depends not on the company’s performance but on its role in production chain and the number of technological cycles. Such an approach to taxation stimulates considerable increase of tax burden, first and foremost, that on consumer goods and food enterprises, processing branches of the agro-industrial complex, wood-processing, pulp and paper industries, machine building etc. It turns out that within the same branch, enterprises manufacturing products using high-grade and more expensive raw materials experience much more difficulties.

Such a situation engenders incentives to vertical integration, i.e. consolidation of technologically related enterprises, determining higher level of economy’s monopolization. Monopolies that emerged to optimize tax payments are not interested in cooperation with any intermediate parties, small and medium enterprises offer no incentives to competition. So, small and medium business declines, as companies cannot stand price competition with monopolies. 

After the World War II, in the majority of states, the sales tax was not imposed due to the above reasons. However, further growth of fiscal needs urged a number of countries to seek for alternative types of indirect taxation. In 1954, France substituted the sales tax for the VAT and pioneered in change of consumer tax structure.

 

The expansion of the tax base and shifting of burden substantially away from the critical engine of our economy the consumer will do nothing but spur business along with the tax and compliance savings business will experience.

Making unsubstanitiated claims does not make for the fact that the transaction/turnover tax will do nothing but burden the economy down. It claims to be revenue neutral, that alone assures the it will burden the economy by 30%+ of GDP. That is inescapable, and is the clear evidence of the fact that it is a compounding tax, the other is the fact that it is based on full value of every transaction, cash flows are circular, capital is reaplied repetititively in the transfer of product throught the chain of production and the makets. All your transaction tax does is repeatedly tax that capital as it works in the economy, each time that capital is applied to its proper use. The tax is extracted from the transaction and must be compesated for by a higher price, on final product delivered. That compounds the tax burden.

When they remove funds to their personal or corporate accounts they will be taxed at 0.25%.

Each and every time for what ever purpose, profitibility requires volume flows & repeated utilization of capital in the generation of sales. Sorry the 0.25% compounds against the cost burdens on the company in their cash flow accounts, just like compound interest does in a loan. The more times it is applied against the principle (i.e. capital investment) the greater the burden on the principle, (1+rate)ⁿ-1 is the effective compount rate on your tax as it is applied against the aggregate capital (wealth) of the nation.

[ancient_geezer]

Now regarding NRST, I see five major problems:

1. It aims 100% at heart and engine of the economy with the potential for major price increases with wishing and hoping the market will force price reductions commensurate with tax and compliance cost savings.

All taxes hit at the heart and engine of the economy, the issue is keeping the overhead costs and deadweight loss that go with the fact of taxation to a minimum.

The NRST taxes once at the end of the entire chain of production, it is equivalent to a transaction/turnover tax with a value of n = 1 it cannot compound, it cannot repetitively add overhead cost to the system.

2. It is the most regressive form of taxation even with the rebates.

 

To illustrate examine the tax burden that a family of four will have at various annual expenditure levels as compared to that same family under the current tax law, (2004 income plus FICA/MC with EITC & child credits applied):

 

 

3. It fully double taxes after-tax savings and accumulated, after-tax home equity that millions of Americans look to provide retirement source of funds for living.

False, savings and investment are not taxed under the NRST. Neither the return on investement or saving, nor the capital when it is invested.

 

4. The definition and compliance burden of differentiating used from new products is highly susceptable to evasion schemes and black market activity.

All tax modes are equally susceptible to black markets, they occur regardless simply because of people desiring to escape oversight and reporting to government. (e.g. illegal trade, underground cash economy, barter, home grown instead of purchase)

Are taxed goods going to be "stamped" kinda like King George did awhile back which I believe we all found revolting?

Used means NRST previously paid. To purchase with paying the NRST requires certification and business license same as any retail tax that exists today. Businesses are auditable and their products tracibile by virtue of thier licensing. Any business of volume exposed to the monitoring of the state tax administrations, since more the 80% of dollar volume of retail trade occurs in less than 20%(the largest) businesses.

5. There will remain a substantial collection and compliance bureaucracy, possibly moved to the state level, but they can be just as nasty or worst then the IRS especially when their ranks are expanded by Federal grants to states to provide these functions.

LOL, there will be a substantial collection anc compliance bureaucracy with an tax system, especially you turnover tax.

The understatement of the year regarding the APT:

" Implementing the three phases will require several years and careful government management, especially the third phase. "

 

There -- that oughta spur another 400 posts. Could we keep them respectful and civil? -- probably not.

There will not be another 400post simply since this one has been more than covered.

Good day.