Free Republic

Well I have appreciated this interaction more than you know. You are a very sharp and knowledgeable person. I also favor the NRST over the current system but believe once installed it can serve as an effective stepping stone to the APT system. Because there are some real negatives that I believe will at least cause a fierce debate between the parties if not cause it to be defeated or never put in the spotlight. For example the double taxation issue I raised in post 364 #3 you did not answer directly. I don't mean to do battle again just telling you my outlook.

Lastly, and it may truly be lastly, I understand your points regarding the "cascade effect" but you must put this in quantitative context. APT is orders of magnitude different in rate vs. traditional and even NRST rates -- therefore you can argue qualitatively but when you apply the relative numbers it just doesn't wash -- and we designed it that way purposefully. Indeed, you take away 20% (to quote NRST) from every business at every level and add back 0.25 or 0.5% -- you just can't have a accumulative addition from a big subtraction. The 30% you frequently quote would never be reached -- unless you gave no tax relief and just piled on top like in Australia and every other quickie implementation around the globe. At least the software has been well tested. I can't help the lassitude of Americans if they do not feel the pain of taxes but I've had enough pain and if you ask the voter which they choose you know the result.

I am repeating old arguments now, so will sign off and wish you good luck with NRST. You are an excellent advocate.

I apologize for being a bit absent from this raging debate but I am very busy outside of the blog. I want to clearly explain the many citations of "failure" you quote and set the record straight. ALL of the transaction tax attempts you quote have been flawed from the beginning and categorically OPPOSED by Dr. Feige because they failed to follow an essential tenet of the true APT concept. Therefore you should not refer to them as "APT" since they are merely transaction taxes NOT close to what is being proposed for the USA. That essential element is the total REPLACEMENT of all other forms of taxation. ALL of these countries had inadequate economic environments and used the transaction tax to "pile on" -- in the case of Australia the transaction tax was imposed at the state level so lots of game could be played. The paper you so frequently quoted by Mr. Albuquerque(sp?) is actually a doctoral thesis which was rounded criticized due to its simplistic and unrealistic assumptions.

Let me make it perfectly clear, we fully recognize that the way the transaction taxes have been imposed in several countries will indeed create a distortion and "cascade" effect that ancient_geezer so frequently states. However, being cognizant of this we specifically proposed from the beginning the requirement to totally REPLACE Federal taxes in the same way the NRST does. Why? Because we need the removal of the embedded taxes and compliance costs (estimated at 20%) at EVERY level of the supply chain to provide the stimulus and definitively short circuit the "cascade" effect when we add back in the 0.25% per transactor or 0.5% if both sides are paid by one transactor. Therefore at worst case the companies all up and down the supply chain with a 19.5% cost savings. Maybe prices will be reduced by that amount or maybe companies can maintain some of the savings - but that is a market decision we don't attempt to predict or need to predict for our plan to succeed. Therefore, may I reiterate, the APT as proposed for the USA has never been instituted anywhere and lesser models should not be used to criticize it because the difference is night and day.

Another essential not fulfilled by previous partial use of transaction taxes is that the security markets indeed will be effected if they are not robust enough to allow the stimulus referred to above, to filter through and be expressed in increased sales and earnings serving to fundamentally increase the VALUE of publicly traded companies. Our markets are plenty robust and the tax rate is so small that the doomsday scenarios proffered loudly on this site just aren't real despite all the ranting. The amount of investment capital to be invested by individuals from their tax reductions will flow through the financial firms and into the markets in large waves.

I would refer everyone observing this debate back to my post #364 for further explanation and comparison with NRST. And , no we don't have a HR number and neither did NRST 10 months into its public introduction.

Do you need to smear a very well respected career economist and teacher who now is a Rockefeller scholar and consultant to many goverments? Dr. Feige is a very approachable and sincere man with a great idea that crosses political lines in that it is so universally beneficial. I have detected no political agenda in his presentation and explanation of the APT plan.

Thank you Brian -- you are absolutely correct and I used to make this point frequently -- somehow in the battle it escaped my thinking. There is absolutely no difference in the inflation effect than the transaction tax effect except that the magnitude of the inflation effect is potentially much greater and it HAPPENS EVERY YEAR. Whereas once the APT rate is incorporated in a price one time it's there for good and does not incrementally add each year. Thanks again.

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.

As a newcomer do I dare approach the throne? Sure - new ideas are good exercise and I am getting quite a workout, thanks. BUT, when a future is used for a real business hedge like that rice farmer that can buy a contract and knows his cost and therefore can "lock up" a 10% profit (if all goes well in the fields)or personal income if he cleans out his company. He will trade $500 per $100K of revenue for $3000 in income tax on his $10,000.

I fully recognize from your comments that market makers and floor traders must be treated as non-taxed intermediaries similar to banks hold accounts. They should have internal non-taxed accounts and only be taxed when they withdraw funds to their personal or external corporate accounts.

"A couple of nationally recognized money managers have forecast that the Dow Jones would double within 2 years of passage of the FairTax. That dwarfs any minr differences in the amount of taxes that they would pay during that period. Furthermore, to the extent that they purchase US produced goods, they would be paying about what they do now. In addition, they would get the rebate up to the poverty level and that would untax them and increase their purchasing power by 15 - 30% up to that level"

That hardly answers the question of double taxation -- everyone with savings and home equity will pay big-time, full income tax replacement rates (you call it "Fair" Tax I believe)as they spend these funds. It hits everyone with savings and home equity but especially retirees who are about to live off of it. Please try again.

". APT taxes are additive NOT exponential.

The truth is it taxes both sides of every transaction making it 0.5% of the full value of each transaction. Those taxes must be financed in the value of each transaction as they are passed down through the full chain of production embedding into the price of all goods and services, each layer of transactions taxed incrementing price and being taxed again in succeeding transactions. That is an exponentially increasing tax :

taxn+1( Costn + taxn)

recursively for each succeeding level (n). Only people pay taxes, business must pass them on or perish"

I have used many examples and although the formula may apply in some cases many more would be incrementally additive and not exponential. A very important point is that certainly "pass on a tax or perish" is true today with the relatively high rates. But, the ability to pass is ultimately determined by the market (except for monopolies) not the business. Pricing may or may not be considered to include this tiny tax. Due to it's small size, there will be many factors of greater magnitude in price decisions and in order to cut the exponential effect on final goods and gain the benefit of the lack of embedded taxes I would expect it to become common but not universal practice to "eat the tax."

Wow! No wonder they don't make any money, remind me not to invest in this totally inefficient industry. Now let's get serious. Despite your characterization, which I believe is clearly exaggerated, with many fixed and ancillary costs shared over thousands of vehicles, there is a GROSS profit margin (Revenue minus costs of goods produced) that has to be more than 2% (Ford 20.1%, GM 17.4%, Delphi 10.8%) so every sub can AND WILL eat this tiny tax because it is tiny and the buyer will expect them to do so. Don't forget every sub is getting the benefit of losing your favorite embedded tax so the buyer will pay their share and not the seller's. I could conceive of the buyer in a manufacturing chain pushing the tiny tax backward to prevent the accumulated effect. However, even if assumed to a reasonable level like 1000 to 2000 pieces, I have shown will not be that much. Internal transactions will also be handled differently as a behavioral modification under the APT tax. That is what the old tax compliance boys will be doing for the big corps. You are no doubt counting these heavily and they will become, if not already, non-cash in nature. THE TAX IS NOT ASSESSED UNLESS MONEY ACTUALLY MOVES IN THE BANKING SYSTEM.

As I have said in a previous post, This tax ONLY works at this extremely low level. Once studied that will be clear to the politicians (I can hear you skepticism from here -- but that is the case). We would not be proposing anything if the transaction tax had to be more than approximately 0.4% per transactor. Fortunately, at the 0.25% rate we are only using half of the tax base AND the economic stimulus will only serve to increase transactions further enlarging the base so rates will stabilize or even fall, if Free Republic and others stay vigilant.

APT also removes all of the same embedded costs as NRST and contrary to the arbitrary statement otherwise I have proven with numbers those are real savings under both plans.

Your analysis is wrong and simply based on generalizations. APT taxes are additive NOT exponential. The costs of doing business will have an additive effect just like the example of the $40K car I used and that didn't amount to much. Business will also find ways of not doing so many intracompany transfers but we anticipate that and cut our potential tax base in half. In calculating the tax base we use additive debits -- there is no exponential use of data.

One more time - APT is NOT trying to hide anything and I would appreciated your dropping that accusation. We can't help it if the American people might begin to enjoy their freedom from tax concerns rather than sit and wring their hands all day over what the gov't is up to.

"That, trust me, is a given."

Can't do that - believe you are incorrect. Your starting to sound like a liberal, all emotion doom and gloom.

Ditto asks: "How is it that you can say that the middle income person's tax rate will fall to $550 a year or whatever your figure is? Where is the other $20,000(?) of that proportional share coming from? Aren't we just hiding the tax via remote transaction costs from the taxpayer and collectively, aren't individuals paying the same amount as now?"

One more time a little different maybe. We are bring alot more folks or taxable events to the party. I say taxable events because APT doesn't tax people it tax transactions so it includes foreign exchange transactions. Foreigners buying securities, drug laundromats, illegals shipping cash to Mexico and elsewhere, all businesses not just those making or hiding profits, and on and on. You MUST build a big enough tax base to get the rates low enough that they will NOT interfere substantially in commerce and fortunately for everyone the APT tax base available to Americans is in a ratio to gov't expenditures to allow that to happen.. If we had to propose rate of 0.6% or 0.8% per transactor (side)we would NOT be proposing this system -- and the gov't will clearly understand this fact. That is why at even 0.25% we use only half of the potential tax base just to be certain.

"It is thoroughly researched by an international economic expert who originally submitted it to a peer reviewed journal in 2000

Reason enough to be skeptical."

A little respect -- read the original paper on www.apttax.com

So let's built a $40,000 car made up of 1000 parts and assemblies purchased from 1000 different producers (rather absurd but OK). At $40 average per part the APT tax would be 10 cents on each part. If the subs are allowed to pass their tax through then GM or whoever would pay $100 on their side and $100 for their pass through that's $200. Then we need to sell the final product and GM is giving a $4000 rebate BUT they darn well are going to hang all their side of the tax on the buyer (great marketing move)so the $200 they assumed from the subs plus their side of the final sale, another $200, then the buyers side of final sale is $200, so the total federal tax absorbed by the consumer is $600. Oh,least I forget to remind you, all embedded Federal taxes are gone for GM, so I guess NST'ers would say the $40,000 price just dropped 20% -- well then so does APT's.

Now let's do a little poll how many want to buy the $40K car under APT for $40,600. and how many want to buy the NRST model at $49,200? Show of hands please.

But in reality GM will tell those subs, I want a 5% discount next year and you will eat the tax for a 5.25% decrease to the sub. The sub is going to take the deal at 5% but turn it down flat for 5.25%, because that darn APT was going to put him out of business -- I don't think so.

Where's this exponential cascade you all base your argument on?

The banks are doing the APT collection on an automated basis not the Federal Gov't. The Feds will have to follow the exact same process they do now to see your accounts.

What is this "exponential" talk about cascades. The sum of the taxes on all the parts will equal the tax on the total now I grant you the Total will be taxes one more time when it is sold finally BUT that is only the tax times TWO so I'll give you 0.5% on products with sub parts or $100.50 on a $100 product. Quit talking in generalities and do the math. Aren't prices coming down 20% anyway?BR>
I have been a conservative all my life thank you.

I went over the tax base before and many LARGE parts of it will find it hard to pass the tiny tax on or it will be lost in the bidding. 11% goods and services, 25% securities; 26% foreign exchange related; and 25% money and account transfers. I can't say it any clearer and it has been understood by hundreds and maybe by now a thousand before you.

When I say lost in the bidding/negotiation process you all know very well contract negotiations move plus and minus 5 or 10% so how are you going to twist someone's arm for 0.25%. The same is true for security transactions. Yeah sure the day traders may scream - tough, the markets don't hinge on day traders regardless of what saj says.

Are you freepers really willing to pay and pay and pay so you can feel the pain -- that is also ridiculous.

No one has answered my question about how you explain, under the (un)Fair Tax, the severe double taxation of after-tax savings and after-tax home equity from which retirees draw their living -- that is mean and nobody will address it. I'll be mean to day traders and you take on the retirees and we'll see who wins.

When you remove all those embedded taxes NST claims there might be a little room to absorb a tiny little tax -- after all aren't prices going down 20% or more under NST? The same embedded taxes are removed under APT!

P> As I read through this site it is quite incredible. Too many qualitative old generalizations and not enough numbers. Folks we ARE dealing with a new idea that needs some new thinking.

The numbers do matter and must be used. For example (and I need to use alot of them) how can a final product price, the pieces of which are taxed as they are sold to the assembler, reach 130+%, that is patently ridiculous, if you do the math. Of course all those businesses have had their corporate income taxes removed as well as all their excise taxes and FICA share (so according to the magical thinking of NST their prices should all go down 20% - Right? that's the pillar of your deal). Now let's say a $100 product used parts from 5 subs at $20 a piece. Each purchase from the subs would be $20 at 0.25% or 5 cents so the tax in the final product is 25 cents then when the final product is sold another 25 cents is added. That brings the price to $100.50. Now how is that 30 +++%? I will refrain from the names you and your cohorts would append at this point.

Now let's talk about the APT tax base -- it is enormous at $856 Trillion (nearly a quadrillion). The pieces that are NOT NOW TAXED are huge and allow for everyone including business to have big reductions in their taxes. We are well aware there will be behavioral changes in the number of intracompany account transfers and, yes, day trading and short term speculation, so we play with "half our tax base tied behind our back just to make it fair". ALL THESE LOW RATES ARE ACTUALLY BASED ON ONLY HALF THE TAX BASE AVAILABLE.
APT brings alot more payers to the table and makes it better for all. Because of the number of people involved and the size of our economy these reductions in rates sound like fiction but THEY ARE NOT. You cannot discuss the proposal without understanding these core concepts.

Another myth that has been flying around this numberless discussion is that the consumer/individual pay all taxes. Granted that has been true but with rates this low and economic activity stimulated the taxes will "stay put" with their payers to a greater extent (I didn't say 100%). We need to us another example WITH NUMBERS to illustrate how passing along all taxes to the consumer will not make a whole comparative lot of difference. Take the family making $100K and spending $100K in which all the vendors pass their side of the APT tax to the consumer so the family has another $100k to be taxed, a total of $300K at 0.25% or $750. That's a tad shy of the near $30,000 owing the gov under our current system, or the $17,250 due under NST assuming the $75K spent was all taxable(incl the $5000 rebate). Let's further say this high roller traded 200k in stocks, borrowed 100k and bought a condo for $100k now he's racked up $600K in transactions and will owe a total of $1500. Still a little left over to further invest in those markets which the Free Republic Hall of Famer SAJ said would be dead. If there was not such an extreme advantage here with APT, believe me, I would be all for the NST -- which was the case before I discovered and researched the APT Tax Plan.

Lastly, let's talk about those dead security , futures and derivative markets. You accused me of static analysis. Well, don't you think with all that extra purchasing power, low interest rates (because lot's of money competing for the same bonds) and lack of gov't deficits or SS woes, and reduced taxes and compliance costs, the sales and earnings of companies would be booming ... and wouldn't that make for an especially good investment environment. I dare say the markets would be "hot" and all those speculators would be right there en masse (further reducing our taxes)not willing to let 0.25% stand in the way of that 20,50 or 100+% profit.
You know that's the case. if a few folks wanted to move offshore there would be problems with that too not the least of which are regulations and high taxes of lesser (yes, lesser) countries. We'll get that tiny tax on repatriation or heck let them go if they 're going to balk at 0.25%. I don't have absolute proof of this scenario BUT it is certainly logical.

It is true, if you tax something you tend to destroy it but it does depend heavily on the rate. APT will do EVERYTHING that NST does, including save all the same embedded taxes. But since the security markets were considered dead when a 0.25% tax was aimed at them by SAJ and fans what would you think about aiming a 23% tax at the consumer - the very heart of our economy.

Merry Christmas!

I apologize but the name calling is really tough on this site and I generalized. Why do you have to have your wealth painfully extracted from you in great quantities just to appreciate the cost of gov't. Your real debate is with human nature not caring enough to pay attention. I would rather approach that differently than everyone paying through the nose.

It's a matter of magnitude when you talk about passing things along. I agree in general about big taxes but when their tiny because they're spread so thin the effect will be relatively miniscule. Commerce will be buzzing and free of substantial tax do you really think 25 cents on $100 passed along is going to amount to much. How is the foreign exchange market really going to pass along the tiny tax and if they did it would have to go through nearly 100 transactions just to reach the cost of the NST at 23%. "Cascading" like everything else must be quantitated and you will see the math doesn't support the concept.
I am sorry to pour water on the beloved NST but open you minds PLEASE.