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The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would 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 (using a low rate) 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 John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
,
James Tobin James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He ...
and
Lawrence Summers Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pres ...
, 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 (assessment, collection, and compliance costs).


History

The system was developed by
University of Wisconsin–Madison A university () is an institution of higher (or tertiary) education and research which awards academic degrees in several academic disciplines. Universities typically offer both undergraduate and postgraduate programs. In the United Stat ...
Professor of Economics Dr. Edgar L. Feige, a student of
Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
who earned his PhD in Economics at the
University of Chicago The University of Chicago (UChicago, Chicago, U of C, or UChi) is a private research university in Chicago, Illinois. Its main campus is located in Chicago's Hyde Park neighborhood. The University of Chicago is consistently ranked among the b ...
. 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 New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
''. 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. Dr. William J. Hermann Jr. has been one of the most vocal supporters of the APT Tax in recent decades, becoming the Director of a group advocating for the tax in 2004. In 2021, Dr. Hermann began pushing a differing proposal called the Automated Deposit Tax, which he also calls the "Tiny Tax." He says it is a combination of a
Tobin Tax A Tobin tax was originally defined as a tax on all spot conversions of one currency into another. It was suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences. Tobin's tax was originally intended to pen ...
and APT Tax. It would only charge the party depositing money into their account, rather than both parties to a transaction. In 2019, the Lighthouse Law Club, led by Mark Emery Boswell, began supporting and promoting the idea.


Overview

The APT Tax was originally proposed to 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 (ESSR). 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 (whether corporate or individual), 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 (allowing the elimination of state income, sales, and excise taxes) as well as the public school portion of the local property tax." Dr. Feige claims that the APT tax would be very simple, 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." Some raise concerns about privacy—believing that such a tax would allow the government to see each transaction in the economy; however, Dr. Bill Hermann writes that it "only collects money by software in financial institutions." 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 Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
and
net worth Net worth is the value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net ...
. 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. In 2016, Andrew VanHook wrote on his website promoting the proposal that the APT Tax would lead to more fairness in taxation. "According to the Government Accountability Office, 65% of US companies, and 45% of US Households, pay nothing in taxes...
hich Ij ( fa, ايج, also Romanized as Īj; also known as Hich and Īch) is a village in Golabar Rural District, in the Central District of Ijrud County, Zanjan Province, Iran Iran, officially the Islamic Republic of Iran, and also ...
places a huge burden on the rest of us. It also undermines our democratic ideals, and leads to widespread resentment and distrust of our entire system. Under the Transaction Tax, everybody would pay their share with the assurance that everybody else was doing the same."


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. *Phase I: All Federal income, estate, and excise taxes are removed over a period of a few years with adjustments in the money supply to avoid excessive inflationary pressures.(0.15% ESSR) *Phase II: Social security payroll taxes would be rolled into the APT rate.(0.24% ESSR) *Phase III: A mechanism could be established, probably requiring a Constitutional amendment, where an entity controlled by Congress, would collect additional taxes under the APT system to fund all state budgets allowing the elimination of state income, sales, and excise taxes as well as the public school portion of the local property tax. (0.28% ESSR)


See also

*
Income tax in the United States Income taxes in the United States are imposed by the federal government, and most states. The income taxes are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowa ...
*
Sales taxes in the United States Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. Sales tax is governed at the state level and no national general sales tax exists. 45 states, the District of Columbia, the t ...
*
Taxation in the United States The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as ...
*
Tax reform Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxati ...


References


Other sources

* * {{cite journal , last1=Feige , first1=Edgar L. , title=Starting Over: The Automated Payment Transaction Tax , journal=The Milken Institute Review , date=March 2001 , volume=3 , issue=1 , pages=42–53 , url=https://mpra.ub.uni-muenchen.de/11533/


External links


Automated Payment Transaction Tax plan website

The Transaction Tax official website at thetransactiontax.org
Tax reform in the United States Transfer tax