Could this tax plan work?
Automated Payment Transaction Tax

The plan was thought up by Edgar L. Feige, a retired economist from the University of Wisconsin. According to the site, it is possible to replace the personal income tax, corporate income tax, state income tax, fuel tax, capitol gains tax, gift tax, estate tax, excise tax, and sales tax with a teeny, tiny litte tax on all financial transactions. The tax would be automatically deducted from special taxpayer accounts similar to those of E-ZPass holders. A tax of 0.3% on all transactions would, according to Dr. Feige, bring in as much revenue as today’s system.

From the site:

In order to raise the same amount of revenue as our current tax system, a “revenue neutral” APT tax would impose a single tiny tax rate on each and every transaction in the economy. All deductions and exemptions would be eliminated. By declaring a “zero tolerance” policy for any exemption, we wipe out every special interest loophole that now riddles our overly complex tax code. Since the volume of all transactions 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. Even if total transactions fell by 50%, the revenue neutral APT tax rate would only be six tenths of one percent (0.6%) split equally between the buyer and seller in each transaction so each would pay 0.3%. Feige details how the replacement of our current tax system with an APT tax could save the government and its citizens as much as $500 billion annually by eliminating the compliance, collection, enforcement and inefficiency costs of our current tax system. Additional savings would accrue society in general, which are impossible to compute. Just think of all those beautiful trees that will be left standing when we stop printing the 17,000 page Tax Code and the millions (maybe billions) of copies of forms with instructions still being used at both federal and state levels.

Interesting idea. We should note that it would shift the tax burden around quite a bit, and in ways that would have many people crying out about unfairness. For instance, day traders who are constantly shifting their investments around would pay a whole lot more than those who simply stuff all their retirement money in a single funds and leave it there.

Remember to class employers as financial institutions for purposes of this plan.
Otherwise you run the risk of a huge cash-only economy developing. I remember working for a convenience store and being paid directly out of the store’s safe every Friday… then pretty much living off my wallet for a week. The only cash I ever deposited was for savings or people I HAD to send checks to, like utilities and the bank with my car loan.

Granted an active day trader would be paying more than someone who is just letting his money sit somewhere, but wouldn’t he still be paying less tax under the APT Tax plan than he is under our current system? Plus the added benefits of no income tax forms to fill out, and no IRS to contend with. Seems to me that the hypothetical day trader might like this plan.

The tax idea might work and it be desirable, but such a scheme has “effects”.

If a particular stock is bought and sold in one day thirty times and each time there is a .3% tax, that’s 30% in one day of the stock’s value. This revenue doesn’t magically appear – it’s a cost that will have to be paid by someone in some fashion.

Whoops - 9%.:smiley:

If a couple’s tax burden goes from $20,000 to $780, that about a 96% reduction in taxes.

According to the IRS, total tax collection from individuals is just under a trillion dollars.

Actually, much more since employment taxes are included in Feige’s calculations. So $1,700,000,000,000 is collected that way.

Shift 96% of that over to the financial market, which is what his plan calls for, and you’ve just socked them with a $1,632,000,000,000 tax burden.

Bye bye stock market. Bye bye banks. Bye bye U.S. economy.

Even the flat tax looks like Nobel Prize material next to this.

Consider who pays the largest contributions to politicians. Consider that they would pay more under this plan than they do now. Now you’ll understand why I say it will never happen. :rolleyes:

I can’t believe people still come up with these inane reformed tax proprosals. Complete waste of time.

  1. Every year the people complain about the tax laws, the candidates vow to make it easier and then 1000 more pages are added to the tax laws. There’s a very basic reason for this: People want exemptions.

Do you want your mortage deduction to go away? How about charities/churches? Medicial expenses? No fuel tax on farm fuels? Etc. All those are in the tax law because some group wants them and the lawmakers oblige. They are never going to go away in general.

You can’t overhaul the tax system and keep a hundred thousand little tax exemptions.

  1. In the particular case of the idea in the OP, at least it’s not a massive tax cut for the rich like the flat tax or national sales tax (laughingly called “fair tax”) lunacies. The rich will get a massive tax cut on their personal income, but their businesses will be hit hard. Businesses don’t like to pay any taxes at all. That’s why they have legions of accountants and lobbyists. The wealthy people who control businesses will stop this (as written).

But don’t be surprised to see it come back in a consumer only (e.g., non-rich get hit hard) form.

  1. It can’t be enforced. Compaines trade non-monetary items all the time. That’s how AOL got big. It traded ad-space for non-monetary items with thousands of companies. Inflated stock trades were also big during the Internet boom (and are happening again). What is the tax on a stock listed for 200 that's only worth .02? And if needed, the accoutants can always find a “goodwill” of no real value item to trade that avoids most of the tax completely. MS trades 100,000 copies of software with another company. Do you tax the cost of the CDs? The download time? The retail price? (No one actually pays retail if they have brains.)

The current tax system handles the barter economy perfectly well, so this alternate could have a similar mechanism built in. It would violate the tax only on electronic transaction concept but that couldn’t exist in our universe in any case.

But that raises an interesting point. Remember all the time and trouble needed to reprogram computers for Y2K? This system would be all that times a million to implement. Where does this money come from? Oh, right, it comes out of the pockets of those who will see enormous increases of taxes under this system. More incentive.