Balanced budget and simplified global tax reform? The tax on automated payment transactions

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Imagine a rate less than a few cents on the dollar.

Tax on automated payment transactions (APT). Have you heard of this ? I probably wouldn’t have heard of it if I hadn’t interviewed Green Party presidential candidate Jill Stein. I really like what the Green Party has to say on criminal justice issues and if climate change is something to be taken seriously the Dem / Reps certainly aren’t. However, the tax part of the Green Party platform is a bit of a mess. There are some interesting ideas in there, but it doesn’t add up too well. So I am grateful to Robert Steele for pointing me to APT. I may have more on Mr. Steele in a future article. He’s a pretty interesting guy, but like with Jill Stein, I’m going to “lead with taxes,” as we sometimes say when we go to the market. APT is Mr. Steele’s entire federal tax program. You could debate if this is a good idea or if it would really work, but there is no doubt about its consistency.

The APT is a proposal to replace all federal taxes with a single tax on all transactions. It’s a bit like the financial transaction tax included in the Greens’ platform, but much broader. The claim that it could replace all taxes is reminiscent of proponents of property value taxation, the idea Henry George outlined in Progress and Poverty. The Green Party supports property value taxation, but not as an exclusive tax. APT is easier to explain than LVT. Basically, any transaction occurring in the financial system will be charged on both sides of the transaction. The tax would automatically be collected and remitted. As this is every transaction and always at the same rate, it would seem like it wouldn’t be that difficult technologically. Vendors already have sales tax software that must accommodate a plethora of exemptions and a variety of rates in thousands of jurisdictions. Since the base is much larger than income tax, the neutral income rate is very low. According to the promoters’ calculations, the rate would be 0.35%. To fairly compare it to a sales tax, you need to double it because it’s on both sides of the transaction, resulting in a rate of 0.70%. When trying out an idea like this, it is best to suspend judgment on the necessary rate.

The concept has been around for some time. Here is a first detailed discussion of Edgar Feige, who is the origin of the idea.

The APT tax can therefore be considered as a universal brokerage commission levied by the state to finance the range of services it provides. The most important of these is the maintenance of institutions that protect and facilitate the acquisition and exchange of property rights. Like all brokerage fees, the APT tax establishes a spread between the buying and selling price of each transaction.

There are several ways to avoid APT. One is to deal in cash. An additional part of the plan is to levy a fee as the currency is issued or redeemed. In the newspaper he puts that at around 2%. Another idea, which I have although I’m sure it won’t turn out to be original, could be to put an expiration date on the currency. The greater the face value of the note, the shorter its legal tender period. You can also get around APT by barter, but barter is very expensive. The real incentive, I see, would be to encourage vertical integration, since intra-firm transactions would not be subject to the tax. If you control the whole distribution channel, from raw material to retail, you might only be hit by tax twice when switching from original production to consumption, instead of multiple times . The incentive to control the entire chain, however, already exists. I don’t know how much of an extra incentive that could be.

The biggest objection would probably come from people engaged in high volume transactions. This is the biggest objection to the financial transaction tax. There is a strong feeling that the trade slowdown might not be such a bad thing. Here is an observation in Dr. Feige’s article:

By creating a tax wedge between the bid price and the ask price of financial assets, the APT tax provides an incentive to extend the average holding period for financial instruments. It thus reduces the current disparity between short-term financial time horizons and real long-term investment time horizons.

It was written in 1999. There are quite a few people who think that the subsequent improvements in high speed trading have not been such a good thing for the real economy.

Obviously, this idea has been around for a while without getting much traction. It’s one of the virtues of alternative political voices, that they keep ideas like this alive. I am grateful to Mr Steele for bringing this to my attention and hope to hear more from him.

You can follow me on twitter @peterreillycpa.



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