Skip to comments.APT: A Tiny, Flat Transaction Tax - Far Better for the Nation than the National Sales Tax
Posted on 12/05/2004 9:03:22 PM PST by APT Project Director
AUTOMATED PAYMENT TRANSACTION (APT) TAX Taxation technology for the 21st century
Dr. Edgar L. Feige, Professor Emeritus of Economics from the University of Wisconsin-Madison and the originator of the APT Tax concept, has just produced new estimates suggesting that a broad-based transaction tax as low as six tenths of one percent could replace the entire Federal and State 2005 budget revenue requirements of the United States of America.
The APT concept is elegant in its simplicity - potentially replacing the entire federal and state tax system - including income, corporate profits, excise and estate taxes - in favor of a tiny tax on all transactions. The tax would be automatically deducted from special taxpayer accounts, linked by software to all accounts at financial institutions capable of making final payments to the government seamlessly in real-time. The APT tax therefore eliminates the need for individuals and firms to file income and information tax returns. This is estimated to save citizens and the government roughly $200 billion per year in administration, enforcement, evasion and compliance costs, roughly seven times the amount currently being spent on homeland security.
The APT tax seeks to maximize the goals of both the government and the people - collecting necessary revenue with the lowest possible tax rate. The difference between the APT tax and our current income tax, as well as the proposed consumption taxes, is simplicity, progressivity, and breadth-the APT tax allows for significantly lower rates spread more equally throughout the world of economic activity. The APT is a transaction tax, and as such, taxes every single transaction that occurs in the economy including fund transfers between accounts and transactions involving the exchange of bonds, securities and foreign exchange. Because the wealthy conduct a disproportionate share of these financial transactions, the tax is highly progressive despite its flat rate. Progressivity is achieved through the skewness of tax base itself rather than through the progressive income tax rate structure of the current system. The very small tax is "sliced" off each side of every transaction as it moves electronically through banks and all other qualifying financial institutions. The tax collection is orderly and transparent, the rules are simple and universal and apolitical. The APT system eliminates the entire present tax code. No more exemptions, no more deductions, no more special interest loopholes and no more tax returns.
Feige's 2005 projections of total debits of $881 Tril., and total transactions of $832 Tril. (based on the most recent 2002 Bank for International Settlements data) update the figures he used in his original paper, published in Economic Policy in 2000. Taking the average of these two estimates ($856 Tril.), he conservatively assumes that the replacement of the current tax system with a revenue neutral APT tax will reduce total transactions by 50%. The projected potential APT tax base for 2005 would then be $428 Tril., permitting a revenue neutral flat tax of .57 percent on all transactions or .28 percent on each (buyer and seller) transactor to replace projected 2005 Federal and State tax revenues.
The tax rates required for a "revenue neutral" tax are divided into three phases which are the result of a suggested implementation plan that would gradually replace virtually all Federal and State taxes. The projected tax rates are calculated conservatively, assuming that only 50% of the potential 2005 APT tax base is available, since the volume of total transactions is expected to fall with the introduction of the APT tax. To the extent that transactions decline less than is assumed in the current calculations, an even lower tax rate would be able to raise the requisite revenues. As individuals and businesses use their new found economic freedom, transactions naturally grow over time, suggesting that future tax rates could be even lower.
Utilizing 50% of the projected APT tax base for 2005 of $856 Tril., that is, $428 Tril, the estimated tax rates required to raise the revenues projected for 2005 budgets are as follows:
Phase I (Eliminate all Federal taxes other than SS and Medicare) Required revenue neutral target=$1.242 Tril: Required tax rate = 0.29% per transaction or 0.15% per transactor.
Phase II (Eliminate all Federal taxes including Social Security and Medicare "payroll" taxes) Required revenue neutral target = $2.036 Tril. Required tax rate = 0.48 % per transaction or 0.24% per transactor.
Phase III (Eliminate all Federal taxes including Social Security and Medicare "payroll" taxes and all State personal income; corporate profits and sales taxes) Required revenue neutral target = $2.436 Tril. Required tax rate = 0.57% per transaction or 0.28% per transactor.
The estimates above are based on 2005 revenue and transaction projections. Implementing the three phases will require several years and careful government management, especially the third phase. However, Dr. Feige has built in a safeguard for the APT Tax by calculating the required tax rate based on only half of the transactions that are actually observed.
Examples: Assuming full implementation of Phase three: 1. $100 restaurant bill would have a tax to the customer estimated to be 28 cents and the restaurant would pay 28 cents. 2. $50,000 family income deposited and spent or moved to savings results in $100,000 of transactions paying a total tax of $280 distributed over all the individual transactions as they occurred through the year. These amounts would be doubled if businesses fully shifted their tax burden to the consumer, but nowhere near the $15,000 to $20,000 the family would pay under the current federal and state systems.
It is now important to begin the process of planning the economic, legal, technical and administrative requirements necessary for a smooth and transparent transition from the current tax system to an APT system. The proposed, new collection system will be tested by computer simulation to capture all potential errors and omissions (new job for the IRS). Then, it will take several years to rollout, especially Phase III involving central collection and distribution to the States. A national commitment to this revolutionary, fair, automatic and lowest cost tax system is needed NOW!
For more details, please visit www.apttax.com
William J Hermann, Jr. MD, Director APT Tax Project Contact: firstname.lastname@example.org , 713-932-3773
APT deserves a seat at the "Tax reform table". Our country does not need to be sold down the NST river thinking it's the only way to end the IRS and the Code.
Where's your legislation's bill number so we can look under the hood at its practical implementation.
Me thinks this smells...
With the Fed Inc tax - there is total freedom - no total tracking of movements and actions...
"The APT Tax achieves all the reforms of the NST with none of NST's negatives. "
It would seem to me that placing such a tax on financial transaction such as stock purchases and sales would quickly bring the financial markets to a grinding halt.
Investors would simply stop, and I mean STOP as in totally and quickly, trading securities on US stock exchanges. Capital formation would CEASE, and jobs would disappear QUICKLY as investment would halt.
Unless I'm missing something.
I'm a big NRSTer myself, but if you're going to go as far as you're proposing, why not just do the following:
Repeal all federal taxes and simply print the money needed to run the government. Honestly, it would probably be better than the current system, which discourages saving, hard work, investment, and productivity gains.
Maybe we'll couple this with a massive tightening of the Fed. After all, so much money will be floating around the economy (no federal taxes) that savings rates will sky rocket and bank reserves will go up, suppressing interest rates while keeping inflation low.
Let's just call a spade a spade and implement a 3 - 5% tax on all national wealth through overt inflation (printing money).
3 - 5% on EVERYTHING! Now that's a Flat Tax!
Since all taxes and the overhead costs related to their compliance must of necessity pass either forward or back to the individual, how does the individual determine the total burden that the APT imposes upon his income and expenditures, including loss in capital value as a result of lower market liquidities; Overhead costs on business & financial markets as they pass on to the individual in impact on the economy; and deadweight losses involved in the burdens laid on transactions as an aggregate?
That is a correct statement, but who or how many parties are in control of the data?
So the proposal is to have both a sales and income tax. What about prescription drugs for the poor? Are these still taxed?
Yep. And if you read into the plan the APT is based on, the Tobin Tax, that is exactly why they intend to do it.
The Tobin Tax is a tax intened to be applied to the currency trading market. The globalist backers of the plan want to do it to "throw sands in the wheels of the currency market" in order to stabilize third world economies. Revenues, they say, will be used to fund the IMF, the World Bank, and other international financial institutions. See the despicable plan here:
Re: investors would simply stop
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:
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.
Re my post #3 that's the one.
A few years I had an idea to let banks deduct a small percentage say 1% from each transaction. Say you go cash a check. The bank will deduct 1% to give to government and you get the rest. Say you go to deposit 100 cash to your account. They will deduct 1% and give to the goverment. Every time a check of yours clears they will deduct 1%. When the company you paid for a debt deposits your payment they will get deducted 1%. Every time any one deposits or disburses 1% will be deducted.
Let's recongize that we have a closed system and use the banks to collect our taxes. They are already set up for it. Biggest plus will be it will hit the illegals sending money to Mexico or wherever.
No thank you. I prefer to keep my transactions private, and my cash available for use.
Follow up example:
Say you take cash and go to buy beer. When that store deposits your money they will get hit with the 1%. This way cash gets taxed, not income. Cash is what we need to tax.
It is a nice idea but I think what would happen is that a lot of stock and bond trading would move to an electronic exchange in the Caymen Islands or something like that.
Or it might move to Tokyo, Frankfurt, etc.
Re: investors would simply stop
Because the tax costs increase exponentially with the amount of trading. It operates like compound interest. Think, 1% compounded hundereds of times a day in trading of the the same shares of stock for example, that goes on in creating the liquidity our equity and commodity markets require to be efficient and liquid.
What happens to a stock price when you try to buy it and there is on volume trading to absorb your transaction. Instead of buying on an uptick of 1/8th or 1/4, look for dollars .... and all taxed at some % of total price of the transaction to boot.
That floor trader than now assures your efficient trade at minimal tick to you, ain't gonna be their for you with every trade he handles being taxed to death, with each trade they undertake in a day.
Financial markets, equities, commondities all have the same problem, they rely of volume trading for smooth functioning and someone willing to take the risk of buying from you, or selling to another and absorbing the trade risks.
Tax in the APT manner, and that trading comes to a very quick end. Tax a thing, you get less of it.
Tax trading, and market transactions, ....... think about it.
I've got an idea - cut the damn spending by about 45%! Too many parasites is the problem, not lack of money.
The main reason I don't like it is that it is actually too transparent. People won't see the money coming out. I think the entire system of withholding that was mandated during the Nixon administration is one of the worse aspects of the current system. If you had to personally write that check each month, or at the end of the year, you'd be a lot more congnisant of exactly how much you are being raped by our masters in washington.
If this were implemented, people would become even more disconnected from the taxes they pay than they are now. I just can't believe this is a good idea. It is especially dangerous because the actual rate of taxation is so small. People just won't see the dangers when congresscritters propose the inevitable .5% per transaction increases. It would give the bastards yet another way to hide their rapacious ways.
So each time you buy something you will have to show an account number to sort the tax? No thanks. The government doesn't need to know where I spend my money.
Here comes the transaction cops........
So if you buy a capital item like a building or a locomotive or even an automobile, that is built up of many components and subassemlies, minor and major, fabricated by various providers (or divisions?) you pay transaction tax on every bolt, brick, wire or semiconductor, the labor to make it, the payroll contractor of each provider, etc. and the labor to make them into, say, an alternator. Then you pay a transaction tax on each part, unit of labor, and subcontracted service again, when an assembler acquires the alternator and puts it on an engine. Then you pay a tax on all of that again, when you ship the engine to a final assember to make a vehicle. So now you've paid a tax on every bolt at least three times, plus a tax on the tax and a tax on the tax on the tax assessed on the original component. Voila, 0.24% turns out to be the same big bucks we pay now. It's all just hidden from view. The legislature can raise taxes anytime it wants, and no one notices. Just the price of every good and service goes up. No accountability. Sweet.
"It would seem to me that placing such a tax on financial transaction such as stock purchases and sales would quickly bring the financial markets to a grinding halt."
"Investors would simply stop, and I mean STOP as in totally and quickly, trading securities on US stock exchanges. Capital formation would CEASE, and jobs would disappear QUICKLY as investment would halt."
"Unless I'm missing something."
I'm not sure why you think this would happen.
If someone buys $100,000 worth of stock, they pay a $280 transaction fee.
They pay no other taxes of ANY kind, ever.
A family with a income of $100,000 pays $560 year in tax, as opposed to the $30,000 - $50,000 they pay now.
If, as a conservative you believe that lowering taxes INCREASES investments, then this is the ultimate expression of that idea.
Think about it. The avcrage family would pay only a few hundred dollars in taxes, federal, state, local, Social Security, Medicare, and sales tax. That's it.
So what do you think they're going to do with the thousands to tens of thousands of dollars they will now have left to spend.
"It would seem to me that placing such a tax on financial transaction such as stock purchases and sales would quickly bring the financial markets to a grinding halt."
Agreed. This would kill Wall Street, and shift most trading activity to offshore markets. A lot of trading is done for very thin spreads, as well, and just wouldn't occur (i.e. it would no longer be profitable) with this tax.
But, if anybody thinks some federal bureacrats are going to outsmart Goldman Sachs or Morgan Stanley, and manage to place the majority of the tax burden on Wall Street firms... well I'm a little dubious.
The printing money scheme has been tried (most conspicuously in the Weimar Republic in Germany)and the resultant inflation was so horrendous that workers were paid twice a day then HURLED the Deutschmarks out the window of the factory to their waiting wives so they could scurry to the local shops to BUY what they needed before the shopkeepers raised prices (which they did several times a day).
The current income tax is a solution to that problem as it allows the Fed to vacuum the excess fednotes from the system BEFORE inflation becomes so noticable that even the dullest among us can really get a fix on what's going on here.
Oh yes, one more thing: THERE IS NO MORE "MONEY" CIRCULATING HERE.
BUT the total bill is FAR less for the individual than NST or the current system.
Show us, it to be revenue neutral, the average impact of the current system as far as tax dollars taken out of the econommy on the family in regards family income is well documented.
The costs imposed by that system on business are less well understood, but are considerable in direct compliance costs, production disincentives, evasion and avoidence costs, ... and deadweight costs on the system arising from foregone trades.
What are these costs in the APT?
How do they reflect in loss of asset value, wages, prices of goods and services, price paid for financial & equity investment and in the burdens on shorter term trading in all markets?
How will this all impact US GDP, and ultimately the standard of living of the American Family?
And most importantly how does the electorate determine in a personal way the cost of government on his life that they may hold government accountable to cost efficiency in relation to their perceived benefit derived from government?
Yep, and when I cash my check I want no 50's or 100's since most places don't want to make change.
"So each time you buy something you will have to show an account number to sort the tax? No thanks. The government doesn't need to know where I spend my money."
There is no account number, just like there is no account number when you pay sales tax for a purchase.
But, instead of paying $8.25 sales tax for a $100 purchase, you would pay only 28 cents.
They don't care who you are or what you're buying.
This is a terrible idea. Transactions of all kinds should be as frictionless as possible to quickly eliminate distortions and to disseminate the information provided by the "invisible hand" of a free market economy. This would do just the opposite, by generating a totally new set of distortions, reducing liquidity, and creating other unanticipated and unintended consequences.
Of course our existing taxes also cause similar problems, but there's no reason to expect that this proposal will solve more problems than it creates. And that's even if the proposal were adopted exactly as stated, eliminating other taxes in the process. The much more likely scenario is that this would merely be added on to the existing tax structure, and would at best only temporarily reduce (but not totally get rid of) other taxes.
And the idea that the transaction fee would be so small as to not be a major burden is laughable. It might start out with that intention (just as the income tax started out as a very small percentage) but it would grow inexorably over time.
There is no good solution to taxation except to continually reduce the total tax burden along with the size and power of government. Anything else is just rearranging deck chairs on the Titanic in an attempt to counterbalance the flooding.
If we can get the states to agree on a distribution system
Are states then to give up their soverignty over how they collect their own revenues?
You do realise that this is something that cannot be imposed upon states by federal government due to the lack of Constitutional authority in this matter.
According to aggregate figures, in relation to gross family income, a tax that covers both state and federal government would be on the order of around 33%+ revenue neutral to 2000 taxlaw.
Unfortunately the Bush tax cuts have not been made permanent, so that is where we stand, at present
This tax scheme would tax internally produced items going into a car differently from those bought from other companies. Thus Delphi would need to become Delco again. It really screws up the valuation of goods. The cost of an item depends on its provenance.
What about the following:
1. Repeal Federal Taxes
2. Repeal the Federal Reserve's support to banks
3. Print a similar amount of money to fund the federal covernment
4. As a result, inflation would not be any higher than it is now. In fact, it may be lower because there's likely to be larger produvtivity gains, counteracting inflation.
How do you measure internal transactions vs external ones? If a company produces bolts internally instead of buying them, are the taxes different? Are taxes added to quality control transactions? Is sweat equity taxed? The whole idea seems like a method to sneak in a VAT along with an income tax. The paperwork would be overwhelming, at least compared to current methods.
does this or that argument mean that we should all continue to pay 70 TIMES more tax than we have to?
How do we pay 70 times less tax under APT?
Incidence of tax burden is not on who submits the check by law, it is a consequence of demand elasticities in the economy passing down to the various factors of consumer, laborer or capital investor/owner. We are all individuals competing and transacting in all markets directly and in our proxies of business.
The government's bill is paid by us all, how can the government survive on 70 times less revenues for the individuals making up the populace of the nation on which the incidence of all taxes must fall?
Such considerations have never stopped them in the past.
Sorry, I don't want the government tracking all transactions, especially in ways the common citizen cannot understand.
This is a poisonous recipe for neverending political and financial hanky-panky of the worst sort.
One tax; visible; at the retail level.
I assure you this proposal is DOA politically.
If we could get by with 70 times less tax (whatever that means), why not just reduce income tax rates now?
If it comes from UW madison, it's crap.
Abolish the slave tax; the IRS and the IRC!!
Support the Fair Tax!!!
I stopped reading right here. Talking about BIG BROTHER!
The government will know every single transaction each person makes, every dime they take out of their bank account!
I think this is the "best" idea to ensure FULL GOVERNMENT CONTROL OF EVERYONE.
Yes, it's sheer insanity...devious even, perhaps.
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