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How would you like to pay a grand total of $27.66 on your $20,000 of income for all Federal Taxes including Social Security and Medicare?

If you make $100,000/year would you mind paying $1,383 as your total Federal tax liability and never pay H&R block another dime?

How about you're some "small business" say who makes $10B a year. Would you trade all of your payroll obligations and any income taxes you might incur for a total Federal Tax liability of about $14 Million paid out over a year? What my business doesn't do any payroll taxes anymore? Yep.. no payroll taxes, no income tax..

Yes, it is possible. It is not a fairy tale and it can be implemented in less than 3 years.

That's right. No capital gains tax. No payroll taxes either for individuals or businesses. No dividing up your return into types of income. No tire excise tax. No gas tax. No returns to file.

Yes, Social Security goes on as before. So, does Medicare. The ultimate in simplicity.

Ever ask yourself what happened to the wealth generated by last years GDP? What about from 10 years ago or 20 or 50? Well, money doesn't really die - in fact it tends to grow every year even in recessions. Money is transformed into various representations of value, though. The currency itself does expand. This is the dirty little secret no one wants you to think about. How often does money change hands?

These numbers are from 2009, yes, during the great recession and banking crisis. Just the value of all retail (you and me and most businesses) non-cash exchanges for 2009 was $70.8 Trillion! That was a few Trillion lower than 2008 given the slow down but far from chump change..

The total Federal expenditures for 2009 were $3.5177 Trillion. Had we simply taxed every retail non-cash transaction at a fixed rate then the total Federal tax including Social Security and Medicare for someone making $20,000/yr would have been $993.70. On a $100,000 income then the tax would have been $4,968.50.

BUT and this is huge.. The notional contracts traded and cleared on the CME for 2009 was $813T and for the entire DTCC the value cleared was $1,660 Trillion! Add these 2 items to the above $70.8T and the value of all these exchanges rises to $2,543.8 Trillion for the year. Divide this number by the Federal expenditures and the tax per $1000 of exchanged valued is $1.383. The person who makes $20K pays $27.66. You earn $100,000 then you pay $1,383. Notice we have still not included all foreign exchanges, private bank derivatives, etc..

First some history of how we got to our current position.

The GDP and GNP are worthwhile measures but both only measure 1st time produced goods and services. Neither care what happened last year or if you took your newly purchased iPhone and then sold it to a friend because you needed the cash and that friend then sold it to a cousin. So, for 2009 the GDP of the US was valued at $14.119 Trillion and the GNP was $14.265 Trillion. For this same year the U.S. government spent $3.5177 Trillion. The U.S spent about $2.47 Trillion in this year for "health care". These are essentially limited static measures of a much more complex economy.

Both the GDP and income/payroll taxes hearken back to the gold standard days when it was reasonable to get a yearly accounting of where the gold was and have people pony up a share to the government.

The fact the tax burden for government revenue has shifted from corporations and import excise taxes to the individual workers income and payroll taxes is not in dispute.  Marginal income tax rates have also been lowered extensively since the 1950's, effectively flattening the tax rate for those of great income. In addition, differentiation of the type of income via capital gains and taxing it less has further shifted the burdened to individuals earned income and payroll taxes.  The income tax and payroll taxes generally burdens the present worker with very little reference to the past or the ongoing effects of stored wealth and credit generation.

Is it any wonder there is an emotional response to cutting tax rates or shifting them to the wealthy? Unfortunately, via lobbying the shift in tax burden from corporations and the wealthy to those who can little afford to give more has become a systemic issue. Drill loopholes, claim it will produce more revenue by closing loopholes and then cut the tax rates. Rinse and repeat. Use the growth in government spending as a whipping boy for more cuts in spending that people actually need and want.

The continued charade of deficit reduction and the never ending argument over income/payroll taxes is an example of incomplete arguments, coupled with these old 19th century solutions, further complicated by Friedmanesque poppycock.

What ought to be an integral solution to both the Federal budget and citizens needs suffers with the constant proposal of dividing the derivative. We argue over the limit, both mathematically and socially. What is on the table at the moment is expanding the limit on a few via the income tax while simultaneously imposing a limit on what are truly needed Federal revenue expenditures both present and future given a complex economy and human needs. We must recognize the U.S. Government creates value. It is value. It creates money for us. It's monetary needs are not determined by the year, per se, but over generations. It is before us and will be after us. Hurricane Sandy today, maybe Syria tomorrow.

What is needed to break this cycle of insanity is a total modernization of the current system to reflect a technological society while providing those goods and services that only the Federal government is in a position to provide.

The true gross overall economic measure is MV or money times velocity for a given time frame it is not the GDP or the GNP. Any modern system of taxation must acknowledge, gee - We have machines mostly manage all this stuff. What if we tax the damn machine? What if we just took a small fee on every transaction going through? Easy to program. Why it's almost like an ATM fee :) The U.S. government does after all provide guarantees for much of the system. Who benefits most from the economic system? Certainly not the homeless. Not the poor. Generally not even the middle class. But, every single person and business adds to this complex economy. EVERYONE. You gave the homeless person a $1 who took it and bought coffee. That is an economic transaction. The store bought some coffee, water, help, etc. with its portion. It got rolled up through the system. Waste, Fraud and abuse? That too is economic activity and was rolled up into the system.

So, lets say we want to pay as we go and also want to pay for universal health care. We need to net out what the government spent in 2009 on Medicare and Medicaid to get to what remained - about $1.64 Trillion for the total health care costs (yeah, it includes insurance companies). Add this number to the U.S. expenditures in 2009 for a total of $5.1577 Trillion, divide this number by the transactions of $2,543.8  Trillion then multiply by 1000 for $2.03 per $1000 transacted. Wow, big jump there. On $100,000 of income you now owe $2,027.56 instead of $1,383.

That is the power of taxing all transactions equally. It is time to start. This tax could also be done on a dynamic basis adjusting itself to slow down or accelerate depending on the economy. If the Feds taxed all of their outgoing transactions (this nets out for them) then Congress and the people, along with budget analysts would have a realtime look of what was going where and to whom.

I thought of this idea in 1993 but learned a couple days ago that Dr. Edgar L. Feige,  Professor of Economics Emeritus at the University of Wisconsin-Madison had thought of it earlier. He has conducted extensive research in this and there are 2 websites dedicated to his ideas with a tax calculator.

My figures used for illustration differ from the numbers in the websites nor do the websites include Universal health care but the ideas are very well developed with a proposal for implementation within 3 years.

The site immediately below also links to Dr. Feige's original papers.

The Automated Payments Tax

A simple explanation with tax calculator is below.

The Transaction Tax

This can be done quickly and easily. It vastly unburdens the working poor, the middle class, and true small businesses from what is a truly onerous system of taxation. What is more it is fair and will unburden big businesses and most of the wealthy, as well. Most businesses can go back to investing in R&D, hiring people and producing the goods and services we need for the future without extraneous worries. Multi-Nationals can bring the capital back from abroad and invest in new plant and equipment. It gives government more flexibility to deal with actual human issues and emergencies without the constant (stupid) argument of who pays. State and local government budgets can be included with time. To me it is a solution whose time has come.

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Comment Preferences

  •  This soundes a lot like a Value Added Tax (3+ / 0-)
    Recommended by:
    Gooserock, wonkydonkey, J M F

    which is a rather regressive tax (hits the little folks harder than the big folks). Me I'd prefer a more progressive tax structure.

  •  Raising Revenue Isn't the 1st Purpose of Progressv (3+ / 0-)
    Recommended by:
    wonkydonkey, J M F, ManhattanMan

    taxation. Preventing wealth and income concentration is most important. We learned that the hard way in 1929. Revenue comes 2nd.

    So income and cap gains taxes aren't the problem, they're a major part of the solution.

    When our tax system was most onerous as you describe it, we created humanity's first large middle class, stopped our seniors dying mostly of exposure in poverty and made them secure in retirement, built the federal highways and went to the Moon.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Fri Dec 07, 2012 at 06:05:21 PM PST

    •  Wealth has escaped taxes by the (2+ / 0-)
      Recommended by:
      wonkydonkey, cynndara

      truckload. If you work for wages then the burden is on you, it is not nor will it ever be progressive given our politics and present tax structure. You are outgunned (me too).

      This taxes all wealth exchanges directly - something that is not done now. Too much wealth simply escapes taxation altogether.

    •  This system may not be progressive (1+ / 0-)
      Recommended by:
      J M F

      but at least it makes the Buffett rule, i.e. the millionaire and his secretary will pay about an equal proportion of their wealth in taxes.  Which is unheard of right now.  Nor does it have to be the ONLY tax imposed.  We could add on an additional imposition to directly penalize excessive wealth if we could get it through politically.  And getting it through politically would be much more likely after the fat cats had at least been paying their fair share for a couple of years.

  •  What this really sounds like... (1+ / 0-)
    Recommended by:
    J M F

    ...is the tax on financial transactions that has repeatedly been offered as part of Wall Street "reform" and would generate more revenue from where the bulk of the economy's wealth really is.  Both Paul Krugman and Elizabeth Warren have mentioned it often.

    I think the idea of a small pay-as-you-go transaction fee as opposed to the annual torture of accounting for all your various types of income and deductions is very appealing.  Freeing the economy of all the restrictions people put in place to avoid taxes would lead to explosive growth, especially as wealth flows back into the hands of those who actually create demand.

    But because it does actually get at the bulk of wealth our society, it will be fiercely opposed by the 1% who own more than half of everything.  They'd lose all the camouflage they currently have that allows them to hide how little they actually pay to support the country that makes them filthy rich.

    Mitt Romney's 47% who "pay no taxes" would be more like the 95+% who pay virtually no taxes, while those who have gorged themselves on an outsize chunk of the nation's wealth would finally be expected to pay the fair and true cost of their feast.

    "It's never too late to have a happy childhood."

    by wonkydonkey on Fri Dec 07, 2012 at 06:24:56 PM PST

    •  YES! You got it! The difference between the (1+ / 0-)
      Recommended by:
      wonkydonkey

      Financial Tax and the Transaction Tax is the Transaction Tax is much broader in that the only exception is actual cash traded between you and I; however, Dr. Feige has a solution for that as well by charging a bit more for an outflow to cash.

      The vast bulk of what pays the tax going forward is indeed accumulated wealth being traded on the various exchanges and through the banks. Velocity of trades (frequency) will diminish somewhat but there is an incentive then to do as Buffet has done and invest in businesses here in the U.S. for the  long term growth.

    •  Also, we of the 99% get to say (3+ / 0-)
      Recommended by:
      wonkydonkey, cynndara, tle

      "Hey, buddy, I pay the same damn tax rate as you. It's not my problem if you spin your billion bucks 50 times a day."

      The BIG issue is the large banks and fund managers, but because of what it does for the rest of the economy it is an easy case to make to a millionaire business owner that his taxes and accounting nightmares will go down. Gets some of the very wealthy on our side. Manufacutring would be much easier in the U.S. and our exports would rise.

  •  Where are the tax shelters for domestic (1+ / 0-)
    Recommended by:
    J M F

    investments, you know the ones that create jobs, here in the US?

    The reason I say this is because New Deal tax policy for 50 years had shorter and shallower recessions with recovery's with job creation..

    taxing all transactions equally
    Why? not all transactions are equal. There are legit uses of futures.

    SO how do you target excesses, like excessive trading of futures, like 1 million in oil for delivery in June 2013 having a value of 3 million cause of futures speculation......

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Dec 07, 2012 at 07:03:45 PM PST

    •  Their are none..nor should there be. (0+ / 0-)

      The purpose is not to target excesses or be used as a management tool. Once you start down that road then everyone wants an exception for their special case and we are back to where we started.

      Please, consider the fact how much productive businesses will actually save during the course of a year and why many multi-nationals would choose to repatriate funds here in the U.S. given they would not have any payroll or income taxes. That is quite a domestic incentive for re-investment here. If we rolled in universal health care into the equation then even more so.

      The tax as suggested is revenue neutral vis-a-vis current U.S. revenue requirements. The use of tax policy as a method to persuade decisions or disguise gifts is not the most effective or even most desirable method to obtain action.

      Rather Congress could directly appropriate funds and grant them to a preferred use - all above board and subject to debate. The Congress directs actual $$ to those purposes. Perhaps, through public/private partnerships or maybe by direct grants in aid.

      Of course, there are legitimate uses to futures, options, swaps, etc. I certainly don't disagree with that but it doesn't mean they should go untaxed. It is not the future, per se, that is being taxed. It is the trade itself based on the notional amount.

      •  Good luck with that (0+ / 0-)
        Congress could directly appropriate funds and grant them to a preferred use - all above board and subject to debate.
        We have to see 7-8% of GDP spent on job creation or else we have a jobless recovery, it has to be consistent year in an year out. Cant be relying on congress to appropriate.

        Youre really flirting with economic downturns every 4-5 years and job shedding of 15% to 30% and peak to trough downturns of 20-33%, I will not have business or markets picking winners and losers, they have shown they are incapable of doing so.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Fri Dec 07, 2012 at 08:08:57 PM PST

        [ Parent ]

    •  P.S. My Uncle was named Roger Fox :) (1+ / 0-)
      Recommended by:
      Roger Fox

      So, Hi! Pleased to meet you!

  •  Thanks to all of you for your (0+ / 0-)

    participation! Have to call it a night. I will address any other comments in the morning.

  •  Cool. (1+ / 0-)
    Recommended by:
    J M F

    Given that our current system is undergoing a slow but complete and utter meltdown, it's about TIME somebody started offering outside-the-box solutions.

    Simply the idea of modernization for the monetary system is a good start.  Somewhere we have to really let it percolate into our way of doing things, that we are no longer issuing government promissory notes against physical reserves of gold and silver.  Our entire monetary system is based on this obsolete fantasy.  It's time for an update, and while we're at it, there's no reason to continue filing annual tax forms at magnificent time, effort, and expenditure, when something more automatic and efficient can be done with current technologies.  Right now, we're still working with an antique horse-cart that we've retrofitted with an internal combustion engine while still attached to wooden wheels and rope springs.

  •  It sounds like a flat tax to me (1+ / 0-)
    Recommended by:
    J M F

    whereby a homeless person buying a candy bar for 89 cents gets charged the same rate as Microsoft buying a company for a billion dollars.

    Does a guy getting minimum wage of 7.25 an hour pay the same rate as a CEO who gets paid ten million dollars a year?

    Are there exemptions or deductions? Like for health care expenses? Or mortgages? Or for having kids?

    And what happens if you buy a house for 500K and then sell it for 400K (less than you bought it for?) Do you pay the tax on both transactions? Or do you get a credit because you lost money on the deal?"

    “If you misspell some words, it’s not plagiarism.” – Some Writer

    by Dbug on Sat Dec 08, 2012 at 12:09:45 AM PST

    •  Hmm. It differs from a flat tax. (0+ / 0-)

      The flat tax people discuss is a flat Income Tax, which in my view is extremely regressive and will fall disproportionately on the working class and poor.

      The transaction tax does have a fixed rate for everyone across the entire economy which makes it exceptionally small, but every transaction is taxed, independent of type of income or use. This means non-profits, private charities, political organizations, churches, etc are also paying into the system - something that is not done today. Also, every financial transaction is taxed - something not done today.

      So, let me give you some examples based on your questions.

      First, your house question.
      Using an online mortgage calculator and assuming $50,000 down, 30 yr fixed at 4% with another .5% PMI the monthly payment was $2,669.20. Let's assume this is half your salary and put this on a yearly basis so your yearly income is $64,060.80. The mortgage on a yearly basis is $32,030.40.

      Assume we write off the entire mortgage against the salary so your Federal taxable income is $32,030.40 and your tax rate is 25% then your Federal Income tax liability is $8007.60. But, at current rates out of your salary you paid an additional 7.5% for SS and Medicare amounting to $4,804.56. Today your Federal Taxes amount to $12,812.16 yearly. Assume you also pay for your own health insurance at $5,000/year. Your outlay for Federal Taxes and Health care is $17,812.16 yearly or $53,436.48 over 3 years.

      Now assume we have a Transaction Tax which includes Universal Health care costs, Social Security and Federal Revenues to cover the entire budget. This cost would have been $2.03 per $1000 transacted in 2009 rounded up.

      You had $50K in the bank for a down payment and borrowed $450K to buy a $500K house. Since you received $450K from the loan the transaction tax is $912.40. To pay out all $500K to the seller you pay $1013.78. The seller will pay this same amount on receipt. So, your total transaction tax to buy the house was $1,926.18. You make $64,060.80 and lets assume you spend all of it over a year then your transaction taxes amount to $259.63 or over 3 years $778.58. At the end of 3 years you sell the house for $400K which means you received $400K and presumably paid it out, too, for a total 2 way transaction tax of $1,622.05. On a rounded basis over 3 years you've paid out $4,326.81in taxes vs $53,436.48 for a total tax savings of $49,109.67. What could you have done with that extra almost $50K?

      There are no credits or deductions to the tax ever.

      The homeless guy might have paid $.90 for his candy bar rather than .89, then again as a retailer I might have just absorbed  it and he would have paid the same as before. Remember, the total tax to the retailer receiving 89 cents in cash is less than 2/1000 of a dollar.

      Both the guy making minimum wage and the millionaire CEO get a raise based on taxes alone. Yes, they pay the same rate but the CEO is much more likely to place most of that money into some kind of trading account where it is taxed EVERY time they make a trade. Suppose, they trade $5M 4 times a year. He exercises stock options every quarter and buys T-bills. Today it might be in a tax free pension fund and he pays nothing, but with a transaction tax they pay $10,137.79 to convert $5M options to cash then they would pay another $10,137.79 to buy the T-bills. At 4 times a year this amounts to $81,102.29 - something he doesn't pay today.

      You can work out the Microsoft case, but one of the advantages to a transaction tax is it promotes hiring and productive investment here in the U.S. because it does lower operating costs.

      I hope this overview was useful to you. Thanks for the questions.

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