A Transaction Tax

[Jaybees]

Since so little is going on here, I thought this would be a good opportunity to float this idea again...especially since the WSJ is toying with it today. (See David Weidner's column)

A TRANSACTION TAX

Why not a single, easily administered, non-regressive tax?

It can be done, and undoubtedly will be done. The question, really, is when?

The Federal Government could replace its entire system of taxation with a levy on all transfers of value. The actual percentage rate would be quite small—one percent or less—because all transactions (other than the payment of the tax) would be subject to this tax.

There would be no income tax as such, nor any import taxes, or other federal taxes of any kind (and this could be the first step in the elimination of all taxes—state and local as well as federal).

The tax would be levied on stock trades and dividend distributions; wages; inheritances; retail and wholesale purchases; rents; interest; property purchases, etc. In other words, any time there is a transfer of value, the federal tax would be applied to the amount of the transfer.

Apportionment of federal revenues would then be made to the states and local governments on the basis of population, and inversely to the amount of local taxes levied. Those state and local governments with higher taxes would receive less federal revenue. State and local governments would gain the most by not levying any taxes and therefore not incurring collection costs.
Collection of the transaction tax would be a relatively simple matter, since it would work like the collection of existing excise, sales and value-added taxes. The only way individuals or corporations could legally avoid the tax would be by not spending, or in any way using, any wealth in their possession.

And there would be an additional advantage to the tax. The smaller the transaction, the less temptation there would be to avoid paying the tax, while the larger the transaction, the more difficult it would be to avoid paying it.

 

[Bomb#20]

There would be no income tax as such, nor any import taxes, or other federal taxes of any kind (and this could be the first step in the elimination of all taxes—state and local as well as federal).

Which pharmaceutical product is this proposal based on? And is there a proposed procedure for administering it to all the politicians who would have to act against their own interests in order for it to be adopted? Or have the authors been consuming it themselves?

 

[Axulus]

Since so little is going on here, I thought this would be a good opportunity to float this idea again...especially since the WSJ is toying with it today. (See David Weidner's column)

A TRANSACTION TAX

Why not a single, easily administered, non-regressive tax?

It can be done, and undoubtedly will be done. The question, really, is when?

The Federal Government could replace its entire system of taxation with a levy on all transfers of value. The actual percentage rate would be quite small—one percent or less—because all transactions (other than the payment of the tax) would be subject to this tax.

There would be no income tax as such, nor any import taxes, or other federal taxes of any kind (and this could be the first step in the elimination of all taxes—state and local as well as federal).

The tax would be levied on stock trades and dividend distributions; wages; inheritances; retail and wholesale purchases; rents; interest; property purchases, etc. In other words, any time there is a transfer of value, the federal tax would be applied to the amount of the transfer.

Apportionment of federal revenues would then be made to the states and local governments on the basis of population, and inversely to the amount of local taxes levied. Those state and local governments with higher taxes would receive less federal revenue. State and local governments would gain the most by not levying any taxes and therefore not incurring collection costs.
Collection of the transaction tax would be a relatively simple matter, since it would work like the collection of existing excise, sales and value-added taxes. The only way individuals or corporations could legally avoid the tax would be by not spending, or in any way using, any wealth in their possession.

And there would be an additional advantage to the tax. The smaller the transaction, the less temptation there would be to avoid paying the tax, while the larger the transaction, the more difficult it would be to avoid paying it.

Do you get to deduct your cost of goods sold (i.e., if you resell something, do you get to deduct what you paid for it?) If not, then this unfairly biases taxation toward resellers and people purchasing and holding onto inventory. Either that, or people can find ways around it (selling inventory on commission or consignment rather than taking title of the inventory).

Would this tax also apply to people depositing money into a bank account and withdrawing the money? If not, why not?

 

[Loren Pechtel]

A very bad idea.

1) You'll find it doesn't bring in anything like the money you expect. People will react by engaging in fewer transactions.

2) You just provided a considerable incentive for companies to merge vertically to eliminate the transfer costs along the supply chain. You now made it very difficult for new players to enter the game.

 

[Jaybees]

A very bad idea.

1) You'll find it doesn't bring in anything like the money you expect. People will react by engaging in fewer transactions.

Let's deal with one at a time. What will those people do with their money? They could of course put it in their mattress. No gain by doing that. They might bank it. But that's a transaction. It would mean they'd gain from the interest, less the tax on the transaction...but they would gain, And keep in mind that the tax would be very small, since ALL transactions would be taxed.

'Course some will absolutely refuse to allow the bad old government to get any of their money, so they may starve first before engaging in any monetary transactions. I doubt that there will be many who will do so..

 

[Jaybees]

Do you get to deduct your cost of goods sold (i.e., if you resell something, do you get to deduct what you paid for it?) If not, then this unfairly biases taxation toward resellers and people purchasing and holding onto inventory. Either that, or people can find ways around it (selling inventory on commission or consignment rather than taking title of the inventory).

Would this tax also apply to people depositing money into a bank account and withdrawing the money? If not, why not?

ALL transactions would be taxed. You could not bank your money or invest it and make no gain. People would be more apt to bank and collect interest, even though there would be a tax on that transaction too. Goes for stock purchases, yacht purchases, investments in land, etc.

Keep in mind that the tax would be very small since it would bring in revenue from all transactions.

 

[Underseer]

The transaction tax I'm mostly concerned with is some kind of tiny per-transaction tax on stock trades and the like. You can make it really tiny, but any tax here will reduce the advantage that traders with sophisticated computer systems and teams of programmers and mathematicians have over smaller traders. Otherwise, those trades happen at such a high rate that smaller traders have no hope of competing, which creates too much of a barrier of entry into the market.

 

[Axulus]

The transaction tax I'm mostly concerned with is some kind of tiny per-transaction tax on stock trades and the like. You can make it really tiny, but any tax here will reduce the advantage that traders with sophisticated computer systems and teams of programmers and mathematicians have over smaller traders. Otherwise, those trades happen at such a high rate that smaller traders have no hope of competing, which creates too much of a barrier of entry into the market.

Why do we want small traders in the market? How is society helped by having them in the market?

 

[laughing dog]

Larger traders have a greater ability to manipulate a market.

 

[bilby]

How do you detect tax evasion schemes such as the highly sophisticated 'Buy stuff from a bloke in a pub'?

Absent a means to detect every transaction that takes place, such a tax simply drives people to a cash only black economy, where no taxes are paid at all. Why buy taxed potatoes from the market, when you can buy untaxed potatoes for cash, no questions asked?

If governments had the means to detect transactions at the level required for this idea to work, the illegal drug trade would have ceased to exist long ago.

 

[Loren Pechtel]

Let's deal with one at a time. What will those people do with their money? They could of course put it in their mattress. No gain by doing that. They might bank it. But that's a transaction. It would mean they'd gain from the interest, less the tax on the transaction...but they would gain, And keep in mind that the tax would be very small, since ALL transactions would be taxed.

'Course some will absolutely refuse to allow the bad old government to get any of their money, so they may starve first before engaging in any monetary transactions. I doubt that there will be many who will do so..

"Deal with one at a time" actually translates to "ignore the problems with my idea".

The thing is people engage in a lot of transactions for small gain--consider, for example, a CD. In today's climate you'll basically kill the CD because it will cost more to go in and out than you'll make.

And you just made credit cards more expensive because they involve two transactions rather than the one of paying with cash/check.