Payments Tax – automatic, unconditional, unavoidable, universal, proportional, anonymous, and a 99% lower tax rate
Also known as Universal Transaction Tax, Tiny Tax, Credit Tax, etc. Going forward it will be called Automatic Payments Tax or APT in recognition of Edgar L. Feige, emeritus professor of economics at the University of Wisconsin–Madison, the original proponent of APT.
Payments Tax extracts a very small tax from the credit side (receiving side) of every transaction between two different entities. Transferring funds from savings to checking, for instance, is not taxed. The extraction is done automatically when the transaction is being processed by the bank. The funds are not transferred anywhere but simply removed from the national money supply.
It replaces all federal income and corporate taxes and may also replace state and local property, sales, and income taxes. By association, all withholding payroll tax will be dropped.
There are over $7.2 quadrillion ($7,200 trillion) in transactions processed in the United States per year. This includes products, services, assets, Wall Street, every transaction where money is used as the medium of exchange. Source – BIS Red Book
Because the tax base for APT is incredibly large ($7.2 quadrillion per year) a 0.2% tax rate or $2 per $1,000 would extract over $14 trillion, roughly 4 times the current federal budget. The tax burden on a family household income of $100,000 would be $200/yr. APT can also be adjustable based on Fed monetary policy for price control. This would take the place of Fed interest rates. Adjusting APT is immediate because banks can be alerted to the change and quickly update their extraction rates. Fed interest rate changes take time to propagate through the marketplace.
Adding an extremely small APT "rider" at the state level can cover state budgets. Using Colorado as an example: - State share of transactions is $123 trillion based on population percentage - State 2021 budget is $34 billion - An APT rider tax rate to cover the Colorado budget would be 0.03% or $0.30 per $1,000 for Colorado residents. The state tax burden for a family household income of $100,000 would be $60/yr. - This replaces sales, property, gas, and other local and district taxes
Because the tax is extracted automatically by the banks it cannot be avoided. If a bank does not meet its APT obligation it will lose its charter. As with any monetary policy there are always possible creative ways to sidestep the tax obligation: Vertical integration Companies can avoid taxation along the supply chain by integrating the production process from design, manufacture, to retail, all under one entity. This can be addressed with strengthened and enforced antitrust laws. Bartering Bartering removes money from the transaction. In the product market this may be unwieldy but assets can be bartered fairly easily so SEC rules and regulations will need to be strengthened. Offshore Companies may be inclined to move production chains offshore to avoid intermediate APT. However, when the product is brought back to the U.S. for retail that transaction will be taxed. If large monetary transactions are moved to offshore banks using local currency then when that currency is subsequently exchanged for dollars it is a transaction and will be taxed. One thing to keep in mind is that corporate inversion, where companies relocate operations overseas to reduce their income tax burden, will be significantly reduced because of the very favorable small APT rate compared to other countries. Crypto When the medium of exchange itself is replaced by another medium then the challenge of extraction is greater if banks are not involved in the process. One benefit of crypto is that it is based on open access blockchain framework so transactions are exposed even though the entities remain anonymous. Federal regulation of crypto is in its infancy so more work will be required there. Cash transactions The percentage of cash transactions in the U.S. is almost non-existent compared to the overall transaction volume.
APT directly taxes the volume of money that is received. The upper economic bracket classes typically receive more income from other sources such as stocks, assets, capital gains, etc. All of these are transactions and are taxed.
MMT or Modern Monetary Theory is a more correct way to look at our national macroeconomics. As a fiat currency it recognizes federal deficit as a market surplus instead of a debt burden. Additionally, price control from injection into money supply for federal initiatives is managed by resource capacity, not by paying for it with higher taxes or greater debt. The point to be made is that MMT coupled with APT is a model for monetary balance – MMT injects, APT extracts. Making APT adjustable in place of Fed interest rates will provide a much more effective method of managing price control. A key point is that APT taxes the economy, not the individual - as it should be.
There are 7,000 pages of tax code currently. Most of that code is spent defining what “income” is. The definition of income has become incredibly subjective over many years, mostly from obfuscation and manipulation by lobbyists and ill intentioned politicians. This is where tax avoidance thrives. The same thing can be said for the definition of “value”. The surest way to avoid these definition vagaries is APT. As stated above, the tax code for APT is a single sentence: “Automatically extract a very small tax from the credit side (receiving side) of every transaction between two different entities”.
Politicians use the tax code for social engineering. A good example is the mortgage interest rate deduction to encourage home ownership. It could be argued, though, that even this deduction is nothing more than a subsidy to the mortgage companies. Also, social engineering is not always intended for civil value, i.e., the manipulated tax code definition of income. APT removes the opportunity for lawmakers to use the tax code as a “negative incentive” (do this or we’ll tax you) and shifts incentives to the spending side as a positive. A much better solution.
Opposed to popular belief, taxes are not collected to “pay for” legislation. This is another argument that MMT identifies. Taxes are used for money supply management and social engineering. Adjustable APT will continue to manage money supply and, as stated above, social engineering will be much better managed on the spending side.
A key point about our current income tax model is that it was first adopted over 100 years ago with the ratification of the 16th amendment. Our economic framework has substantially evolved over those 100 years and it’s time for our tax model to be updated to respond to our current economy.
APT would significantly reduce the size of the IRS. They would be relegated to the oversight of transaction avoidance, misrepresentation, and barter transactions. No more April 14th, no more garnishment, no more filing, no more paperwork.
This includes inversion, offshore tax shelters, political quid pro quo via tax law obfuscation and manipulation, etc. Corporations will not be spending so much time and effort to avoid taxation since the tax rate will be substantially lower than most other nations and the need for political tax favoritism is reduced.
One argument of APT is what is referred to as tax cascading. This is where each step of a supply chain is taxed by the different product and service entities along the chain. This creates a tax accumulation and “tax on tax”. But the reality is that any company with a decent accountant will include a line item for anticipated tax in it’s cost of goods calculation, so cascading already takes place. If we look at the math, APT is still much better. For example, a 0.2% tax rate for a supply chain that has 10 steps would still only be an accumulation of 2%, way below current corporate tax rates.
APT is still a better solution, even for low profit margin companies. For example, grocery stores usually operate on 3% profits overall. A million dollar revenue company with 3% profit and a current 20% tax rate would pay $6,000 in taxes. APT tax burden would be $2,000 on the revenue, one third of their current tax burden. The only businesses that may show a worse tax burden are the high volume, incredibly low profit margin digital stock traders who are arguably nothing more than gamers providing no social value.
The volume of personal information that we are required to provide to the IRS on our tax returns is completely inappropriate. APT is anonymous since who the players are in the transaction does not need to be known. Additionally, accessing personal bank information to spot possible tax evasion is not necessary. Cheating is almost nonexistent because the extraction is automatic and unconditional. There may be other reasons for collecting this information but that would most likely revolve around criminal activity requiring court action.
19. APT adoption ▲
Switching from an income tax model to APT can be ratcheted over time. Start with a very small extraction percentage of say, 0.01% or 10 cents per $1,000. Even this percentage will yield $720 billion in money supply extraction per year. Reduce the tax tables for income by an equivalent amount so that the overall impact is balanced. This method will allow the system to flush out any issues with process and uncover potential holes. As the process settles the APT percentage can be increased and the income tax rate can be lowered until income tax is completely removed.
20. APT Challenges ▲
There are some aspects of APT that will need to be addressed.
Money valuation
Taxes historically were used to establish and maintain the value of money. If the government injects currency and requires it's citizens to pay taxes using that currency on threat of penalty then it will gain value. Cory Doctorow does a good job explaining this.
Because APT is automatic and unconditional how will the leverage of taxes to induce value be affected?
Transaction volume
Every transaction has energy/carbon and natural resource embodiment, either directly or indirectly. Currently, the top quintile spends 7% of their income whereas the bottom two quintiles spend 105%. APT will shift equity distribution to more balance because it substantially lowers taxes for the lower three quintiles. That will increase transaction volume upwards to 15 times which has a deleterious effect on the ecosystem.
Inheritance
The gifting of assets via inheritance can be argued as a non-transaction. Additionally, APT extraction rate is so low that it's effect on asset transfer would be minimal. More downstream regulation may be needed to avoid family oligopoly.
Charity
Currently, gifts to charity can be deducted from income tax. Removing that incentive may negatively effect 501c3 non-profit fund raising.