Posted on 12/13/2004 9:18:20 AM PST by postitnews.com
bump for later read
Strong dollar due to economic stimulus attracting foreign investment where no income or excise taxes exist.
No way can you claim that one as the tax is paid by business and cannot separated from their input costs be refunded back to them on export any more than corporate taxes today can be. As a consequence the price of exports are higher, cause the dollar to depreciate with respect to foreign currency markets as our trade balances continue in deficit due to lack of competitiveness of our goods in those markets.
Secondly with every transaction taxed, once again foreign investment will find no haven here. In fact with such transaction taxes liqidity of the markets will be such that finding anyone to take the other half of a trade in buying or selling investment will become a high risk venture with no way to predict the spread that will be incurred in such transaction. In todays markets one is able to sell or buy on the 1/8th point in large or small lots with no problem, in low liquidity markets such transaction costs will be much higher that even before counting the tax on the full value of the multiple transactions incurred by the trade.
Very low interest rates due to extra savings by individuals and attraction of foreign investment capital allowing lower cost capital and infrastructure expansion.
LOL, where are these low intrest rates coming from, thin air. That 30% of GDP still gets grabbed by government from the very businesses that must make up the tax losses through their interest rates charged against loans. The financial community that the APT hits the very hardest.
Budget elasticity for government including the ability to respond to special demands such as war or national emergencies.
Translated as government can raise the tax on whim, because their constituents don't see it happening, it all get passed in prices. No thank you, the APT is worse than the current tax system in this respect.
Eliminate budget deficits with minor adjustments in an already extremely low tax rate. Eliminate accumulated national debt through same mechanism if desired - further strengthening the currency.
See above, as well as the fact that government spending has never declined by raising a tax.
Multiplier effects of economic stimulus creating greater numbers and value of transactions in an upward spiral reducing rates or allowing more services.
Taxing something means less of it, infact a transaction/turnover tax assures vertical mergers toward inefficient monopolies. Just the opposite of more transaction infact the author of the APT promises the number of transactions to fall to 50% of current levels. Once again you are blowing smoke with just noise.
Incentive to move toward a "cashless" system.
You may call that a positive, more govenment control and monitoring of the individual is not a positive.
We've already been over this on another thread. Your list of negatives is much shorter than mine. I'll stick with the NST, thank you.
"The proposed, new collection system will be tested by computer simulation to capture all potential errors and omissions (new job for the IRS). "
Gee looks like we don't even need to wait on a new and improved IRS and taking the risk of that APT to do an economic study. We already have what is needed out of the experience of Australia and Brazil with their APT implementations.
Wonder why that Project Director's sales pitch lead us to believe there was no study and contemporary experience with this form of taxation?
Wasn't it nice of those wonderful countries to take the risk and find out what an APT really does for an economy?
Here it is, an actual study of the APT, aka Bank Account Debits Tax as it is otherwise known in its Australian (and CPMF) in its Brazilian implementations neither of which have had a good experience with it.
http://www.webmeets.com/files/papers/lacea/2002/176/BT111101.pdf
| Disintermediation and Illiquidity in a Bank Account Debits Tax Model P.H. Albuquerque November 11, 2001 Abstract: This paper uses a dynamic general equilibrium model to study the economic effects of bank account debits taxation. Theoretical aspects such as tax cascading, financial disintermediation, market illiquidity, impacts on divident and interest rates, tax revenue, government deficit, and effective rates on final transactions are considered. The Brazilian BAD tax,(CPMF) experience is evaluated. The imperical analysis shows that revenue productivity appears to be very sensitive to the tax rate, engendering a Laffer curve. It is also shown that may be impacts on real interest rates. Part of the BAD tax revenue can be lost due to increased intrest payments on government debt. Furthermore the deadweight losses seem to be significant if compared to revenue. Theory and evidence indicate that the BAD acronym is perhaps more than witticism. 1 Introduction. Financial transaction taxes (FTTs) have always had supporters among influential economists, who believe they could be instrumental in the avoidence of macroeconomic instability. Keynes(1936), for example, had a clear stance in the matter. "It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges... The introduction of a substantial government transfer tax on all transactins might prove teh most serviceable reform available, with a view to mitigating the predominance of speculation ofer enterprise in the United States." Stiglitz(1989) and Summers and Summers(1989) further explored and asserted Keynes's views on securities taransaction taxes (STTs). Anothe eminent proponet of an FTT was Tobin. He proposed a small tax on foreign exchange transaction, which is now known as the Tobin tax.1 Eichengreen, Tobin and Wyplosz(1995), for example, argue that the Tobin tax expands national monetary policy autonomy and diminishes macroeconomic volatiltiy. Frankel(1996) is another defender of the Tobin tax. Nevertheless authors such as Umlauf(1993), Hkkio(1994), Shome and Stotsky(1995), Jones and Seguin(1997), and Habermeir and Kirilenko argued or found evidens that FTTs not only ar unable to deliver the benefits thought out by their proponents but also can lead to undesired economic distortions. Aside from this debate, there have been many signs in many countriesfor the introduction of an FTT specifically designed for 1 see Tobin(1978) 2. revenue collection: the bank account debits(BAD) tax.2 Enthusiastic supporters defend the abolition of existing taxation systems which should be entirely substituted, in their views, by a single tax levied on all bank account debits.3 The supporters affirm that a tiny rate would generate all the revenue needed by the government, due to the large incidence base of the tax. Despite the efforts of utopian compaigners, which a have been advocating BAD taxation for years, only f few recent academic studies have dealt with the subject. Some fo those studies are presented as tax reform proposaals, while others analyze the performance of theis tax in countries that have adopted it during the eighties and nineties. Colabella and Coppinger(1999) and Feighe(2000) provide rationale for BAD taxation.4 Feige argues that it would be the most appropriate tax for economies based on electronic transactions. In his opinion, collection costs and tax evasion would be small when compared to traditional taxes. Collecton of taxes from illegal activities would be assured. Tax avoidance through barter or alternative currencies would not happen given costliness. Distortions woudl be small due to its low rate. Feige maintains that the BAD tax would fall disproprtionately on wealthier citizens and would eliminate wasteful tax-related activities, freeing a large amount of economic resources for nobler uses. In contrast, Tanzi(2000) and Coelho, Ebrill and Summers(2001) reach different conclusion based on the experiences of Australia and som Latin-American countries that have adopted BAD taxation.5 As a rule, the BAD tax experiments failed in Latin America. The following negative consequences were common: financial disntermediation, incresd sise of the hidden- 2 The BAD acronym is comonplace in Australia, where this tax has been in place since 1983. 3. economy, a sharp and then a slow and constant reduction of financial transactions volume, disappointing revenues (generally smaller than1% of GDP) no matter the tax rate (which varied from 0.2 to 2.0% effective), shift of capital market transactions to New York, increased use of offshore banking, inefficient merging and vertiacal intergration, increased use of currency and bank account substitutes, and establishment of nonband clearinghouses. According to Tanzi, if a BAD tax reduce the volume of financial transactions, then it will affect economic efficiency. Since the evidence for Latin America reveals reduction, he proposes that the BAD tax should be seen only as an emergency measure for countries facing a fiscal crisis. "If the bank taxes are used at low rates and only for priods of transition to better revenue sources, then, maybe, the deserv a less negativer reaction than most tax experts give them. However, they should not become permanent features fo tax systems." Despite the rlevance of thaose studies, they did not analyze the impacts of BAD taxation using general equilibrium models. Thet also lack econometric analysis of available data. Both issues are addressed here. A simple but comprehensive dynamic general equilibrium model will be used to provide a theortical framework for the analysis of the BAD tax impacts on the economy. The model predictions will be tested using Brazilian data on BAD taxation, which are particularly suited to the task given that, in Brazil, the tax rated has cahnged a few times whil the incidence base definition remained constant throughtout the period. Theoretical aspects such as tax cascading, financial disintermediation, market illiquidity, impacts on dividane and interest rates, tax revenue, government deficit, and effective rates on final transactions are considered, first theoretically and then empirically. Section 2 presents the model, while secton 3 develops the competitive equilibrium solution. Section 4 analyzes the steady state. The dynamics are considered in section 5. Section 6 presents 4. The empirical results for the Brazilian Bad tax (known in Brazil as CPMF). The paper ends with a summary of findings. *** Snip *** 7 Conclusions Australia's Prime Minister John Howard, once referring to a proposal of substituting all taxes in Australia by a BAD tax, declared: "It would completely rnder comatose a workable financial system in a very rapid period of time. And in a global world in which we now live we'd basically be saying that we're opting out oand going back to the jungle. I think, with great respect ot whoever is advocatin it ... it's a crazy idea." The paper used a dybamic general equilibrium model to study the economic effects of bank account debits(BAD) taxes. Theoretical aspects such as tax cascading, financial disintermediation, market illiquidity, impacts on dividend and interest rates, tax revenue, government deficit, and effective rates on final transactions were considered. BAD taxation levies on all other tax payments, on investments, on capital turnover and on bonds turnover. I cascades through production, penalizing specialization, diversification and competition. It unneciessarily benefits vertical integration. I punishes the small firm, which cannot concentrate transactino inside its boundaries. An inspection fo the Eurler equations shows that it also majors real interest and dividend rates through two mechanisms. The first, common to other taxes, represents the effect of alower capital stock. The second effect, characteristic of this kind of tax, is associated with the increased capital and bonds turnover cost. This second effect will generally be substantial and much larger than the first effect. The BAD tax has the peculiarity of levying on intermediation and liquidity. Since the use of bank services may be easil substituted or 24. voluntarily reduced, the incidence base of this tax can be unususally sensitive to the tax rate. The net return of an asset after discounting the BAD tax payments on asset transactions increases with BAD taxation. Capital and bond owners transfer their tax payments to renters(for example, companies, loan takers, and government) through higher rates of return. The Brazilian BAD tax(CPMF) experience was evaluated. The empirical analysis showed that reven productivity is very sensitive to the tax rate, engendering a possible Laffer curve. It was also shown that theire might be impacts on real interest rates, particularly in the case of high-turnover loans. The CPMF is perhaps one of the explanations for the high interest rates and high spreads between bonds in Brazil. Part of the CPMF revenue may be lost due to increased interest payments on government debt. This means that the difference between primary and operational deficits possibly increases with the CPMF. Furthermore, the deadweight losses semm to be high if compared to the relatively small revenues. Theory and evidence, as exposed above, indicate therefore that the BAD acronym my be more than just a witticism. 25. |
Pleaase note that the proposed combined purchaser and seller tax is less than 1%. This is an incentive to maintain all current business structures.
I imagine tax-and-spend liberals would love this, because who's going to get worked up over, say, a 0.1% tax rate increase (which, under a nightmare like the APT would be a massive increase)?
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