Automated Payment Transaction tax


The Automated Payment Transaction tax is a small, uniform tax on all economic transactions — involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automatic collection of tax revenues at the payment source. This proposal is to replace all United States taxes with a single tax on every transaction in the economy. The APT approach would extend the tax base from income, consumption and wealth to all transactions. Proponents regard it as a revenue neutral transactions tax, whose tax base is primarily made up of financial transactions. It is based on the fundamental view of taxation as a "public brokerage fee accessed by the government to pay for the provision of the monetary, legal and political institutions that protect private property rights and facilitate market trade and commerce." The APT tax extends the tax reform ideas of John Maynard Keynes, James Tobin and Lawrence Summers, to their logical conclusion, namely to tax the broadest possible tax base at the lowest possible tax rate. The goal is to significantly improve economic efficiency, enhance stability in financial markets, and reduce to a minimum the costs of tax administration.

History

The system was developed by University of Wisconsin–Madison Professor of Economics Dr. Edgar L. Feige, a student of Milton Friedman who earned his PhD in Economics at the University of Chicago. Feige first presented the idea of taxing all transactions at the International Institute of Public Finance meetings in Buenos Aires, Argentina in 1989. Brazil took Feige's advise and adopted a plan similar to the APT Tax. However, Brazil added it on top of its existing taxes. Despite this, the tax has been relatively successful according to a 2009 report. It was first put in the US national spotlight in February 2003 when it was covered by The New York Times. The Times endorsed the plan as "fair, simple, and efficient." On April 28, 2005, the APT proposal was presented to the President's Advisory Panel on Federal Tax Reform in Washington, DC.

Overview

The APT Tax would replace 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 non-profit organization advocated for an Automated Payment Transaction Tax writes that under the plan, "every bank, brokerage, or other financial account established by a person, corporation or other taxable organization will pay 0.35% on all funds moving in or out of that account. The tax would be automatically transferred to a federal government tax collection account in the same institution. This will be true for stock, bond, options, and futures traders and investors; foreign citizens, companies and governments exchanging their currency for US dollars; a couple buying a new car; and, a teenager buying movie tickets with a credit card. The movement of funds is taxed and collected immediately without recording who or what was the source of funds or the recipient. This automated system would totally eliminate the need for filing tax returns and information returns, freeing individuals and businesses of enormous costs of tax compliance and greatly reducing the government's costs of collection and enforcement."
The rate of the tax is measured as the Electronic Single Side Rate . The ESSR is the tax rate charged to each individual. If the ESSR were 1%, then both parties to a transaction would pay the 1% tax. If a person were transferring money from one account to another, each account would pay a rate of 1%. For this transaction, the government would receive a combined rate of 2%. Dr. Feige writes that the tax could be as low as 0.3% to remain revenue neutral using data from 2005. Instead of acquiring taxes solely based on income, the APT Tax would broaden the tax base to include Stocks, Bonds, and Options Transfers, Money Saving Transactions, Goods and Services, and Foreign Exchange related transactions. The ultimate goal is for the APT Tax to fund not only the Federal Government, but also "all state budgets as well as the public school portion of the local property tax."
Dr. Feige claims that the APT tax would be very simply, efficient, and hard to evade. He writes, "Since every transaction must be settled by some means of final payment, taxes are routinely assessed and collected at source through the electronic technology of the automated banking/payment clearing system at the moment that economic exchange is evidenced by final payment. This automatic collection feature eliminates the need for individuals and firms to file tax and information returns. Real time tax collection at source of payment applies to all types of transactions, thereby reducing administration and compliance costs as well as opportunities for tax evasion." The cash loophole is closed as well. Since cash goes through an average of 2.5 transactions between leaving a bank or other tax collecting entity, before it returns, a tax of 2.5 times the electronic single side rate would be charged on withdrawal and deposit.
With the proposed rate of 0.3%, there would be a tax of $0.75 per $100 cash entering or leaving what Dr. Feige calls a "taxing institution/account".

Progressive Debate

There is disagreement over whether the tax is progressive, with the debate primarily centered on whether the volume of taxed transactions rise disproportionately with a person's income and net worth. Simulations of the Federal Reserve's Survey of Consumer Finances demonstrate that high income and wealthy individuals undertake a disproportionate volume of transactions since they own a disproportionate share of financial assets that have relatively high turnover rates. However, since the APT tax has not yet been adopted, some argue that one can not predict whether the tax will be progressive or not.

Proposed Implementation

Because the APT Tax would radically affect taxation and the US economy, Dr. Feige recommends a 3 phase implementation. All rates listed below are based on Dr. Feige's 2005 report.