APT Tax

[bam]

Hi all,

I've been following the threads in this section lately and have to admit I've been interested and researching on my own to try and keep up. I'm hoping to hear opinions on the APT tax (Automated Payment Transaction Tax) and how it might affect our economy vs the tax reform being proposed by Pres. Trump and the Republican leadership. I apologize but I don't have enough posts to make a link, please search Automated Payment Transaction Tax for the website created by them.

I'm interested in your thoughts on how it would affect our economy (especially in relation to stopping or slowing the speculation rampant in all the markets), how it might impact the "fairness" of the playing field (fed backed big investors would at least pay a small tax in place of fair interest rates) and is it feasible that this could be used as a transition from our pay-it-forward Social Security/health care setup to a longer-term plan involving actual solvency.

I did take basic economics many years ago in college but I'd like some different perspectives and actual expertise if you have any to offer. Thanks!

 

[bam]

Here's a quick overview from their website,

"Although every voluntary transaction is assessed the same low tax rate, the APT tax achieves equity and fairness because the wealthiest portion of the population executes a disproportionate share of financial transactions, whereas the poorest members of society engage in relatively few financial transactions since they have so much less wealth to manage. So it's inherently progressive.

How will the APT Tax system work? 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 (no more 8.25% sales tax, instead 0.35% APT tax); 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."

 

[theprestige]

Yes, please, let's discourage the people with capital from investing in anything. That will *certainly* solve problems!

 

[psionl0]

How would it work? Consider a family with an annual income of $60,000, paying $20,000 in interest and mortgage payments on their house and spending $40,000 on all other items. The family has total transactions of $120,000. Today that family would owe roughly $20,000 in total taxes. Under the APT tax, with a rate of 0.7% they would pay $210 (.35% x $60000) on their income receipts and $210 on their expenditures for a total tax of $420. Their employer would pay $210 tax on the income payment, the mortgage company would pay $70 on its receipts and the merchants receiving the family's $40,000 of other expenses would pay another $140 in taxes. In total, the government would receive $840. And all the taxes would be automatically assessed and paid without filing tax returns.

How then does the government collect enough taxes to pay its bills? Most of the revenues would be collected from the massive volume of stock and bond trades and foreign exchange transactions none of which are now taxed.

http://www.apttax.com/

This web site seems to be very specific about how much tax the typical family might save but then avoids giving any numbers at all when it comes to how the revenue shortfall would be made up. I suspect that the use of leverage and escrow accounts would significantly reduce the tax collected from the "massive volume of stock and bond trades and foreign exchange transactions".

 

[lupus_in_fabula]

bam, it's an old idea put forward in variable form. For example, Keynes proposed something of the sort in the 1930s, while James Tobin (1970s) did the same in regards to foreign exchange transactions.

I think it's inherently a good idea.

 

[The Great Zaganza]

Instead of taxing investment, I'd rather have the state take a cut of the spending - preferably in the form of a progressive consumption tax.

 

[bam]

Yes, please, let's discourage the people with capital from investing in anything. That will *certainly* solve problems!

I don't see it impacting investing too much. I think a real benefit might be in stopping shady speculation and outright market manipulation. I certainly won't stop investing if my return drops from 10% to 9.3% and I don't think too many others will stop either, especially if it provides a way to provide solvency to social programs and health care.

 

[bam]

[/QUOTE]This web site seems to be very specific about how much tax the typical family might save but then avoids giving any numbers at all when it comes to how the revenue shortfall would be made up. I suspect that the use of leverage and escrow accounts would significantly reduce the tax collected from the "massive volume of stock and bond trades and foreign exchange transactions".[/QUOTE]

By leverage account do you mean something like a hedge fund or IRA fund? To my understanding you would only be taxed twice for that sort of investment, once when you invest and once when you withdraw or switch funds. As envisioned it would amount to 0.7% over the time of the investment which seems pretty small compared to some of the brokerage fees in play these days.

 

[bam]

bam, it's an old idea put forward in variable form. For example, Keynes proposed something of the sort in the 1930s, while James Tobin (1970s) did the same in regards to foreign exchange transactions.

I think it's inherently a good idea.

I'm liking it more and more myself as I think it through. It does away with tax loopholes and lobbyists, it (hopefully) minimizes some of the "class warfare" rhetoric from both sides by providing a consistent rate, it strengthens markets by providing a disincentive to speculators and market manipulation and it spreads the costs for providing the market infrastructure more globally to those who are using (and sometimes abusing) them. Tie this to a balanced budget amendment and a plan to transition from unfunded entitlement programs to sustainable funded options and I'm in even if it goes to 2%.

 

[psionl0]

By leverage account do you mean something like a hedge fund or IRA fund?

Absolutely not! Leveraging means only paying a fraction of the price of the stock that you have purchased. It generally means that any gains or losses made when trading the shares are magnified but it also has the coincidental effect of reducing the APT that you otherwise would have paid.

One of the biggest losers in an APT system would be the day trader. They may do hundreds of stock transactions in a single day chasing minute variations in the stock price. Since an APT could conceivably eliminate these profits, they have a big incentive to find ways to avoid this tax. One way would be for the stock broker to hold the money and shares in "escrow". Instead of effecting the purchases and sales, the broker merely keeps track of the orders. The final orders are only executed when the trader decides to "cash out". So, instead of paying APT on hundreds of transactions, the day trader only pays APT twice - once when they make the deposit into the escrow account and once when they make the withdrawal.

 

[Leftus]

They don't address how they would dole out the taxes to the states despite saying they could get rid of those taxes too.

 

[bam]

They don't address how they would dole out the taxes to the states despite saying they could get rid of those taxes too.

My impression was that would still be left up to congress sometime down the road.

 

[bam]

Absolutely not! Leveraging means only paying a fraction of the price of the stock that you have purchased. It generally means that any gains or losses made when trading the shares are magnified but it also has the coincidental effect of reducing the APT that you otherwise would have paid.

One of the biggest losers in an APT system would be the day trader. They may do hundreds of stock transactions in a single day chasing minute variations in the stock price. Since an APT could conceivably eliminate these profits, they have a big incentive to find ways to avoid this tax. One way would be for the stock broker to hold the money and shares in "escrow". Instead of effecting the purchases and sales, the broker merely keeps track of the orders. The final orders are only executed when the trader decides to "cash out". So, instead of paying APT on hundreds of transactions, the day trader only pays APT twice - once when they make the deposit into the escrow account and once when they make the withdrawal.

The tax has already been doubled to 0.7% (0.35% for the seller/0.35% for the buyer) in anticipation of day trading volume dropping the total amount of daily trades by up to 50%.

"Since the volume of all transactions is estimated to be 100 times larger than the current tax base, the flat tax rate needed to raise the same amount of revenues is just a hundredth of the current average tax rate of roughly 30%. So if transactions stayed at their current level, the APT tax rate would be three tenths of one percent (0.35%) on each transaction. Even if total transactions fell by 50%, the revenue neutral APT tax rate would only be six tenths of one percent (0.7%) split equally between the buyer and seller in each transaction so each would pay 0.35%."

 

[psionl0]

The tax has already been doubled to 0.7% (0.35% for the seller/0.35% for the buyer) in anticipation of day trading volume dropping the total amount of daily trades by up to 50%.

That doesn't address my point. Through the use of escrow accounts, the volume of trading has dropped from 100s per day to 2 (and not necessarily per day). So the daily trades have dropped by a heck of a lot more than 50%.

 

[bam]

Understood, but the total amount of daily transactions taxed this way throughout the whole of the economy were estimated to be sufficient to replace all other federal taxes at the rate of 0.7% even if day traders dropped their activity enough to cut the number of all transactions in half. I don't know if leverage or escrow accounts were envisioned but they certainly made allowances for day traders slowing down. I'm of the opinion that slowing down day traders is a benefit with this plan, not a detriment.

 

[psionl0]

Sorry, but more homework is required. The maths doesn't add up for me.

Proponents of an alternative tax system often make the mistake of assuming that everybody will eagerly pay the tax out of gratitude for being relieved of the old tax burden. In reality, most people (especially those who will be most heavily taxed) immediately start looking for ways to avoid the tax. It only took me a few seconds to think of how day traders could avoid this tax. I'm sure that tax avoidance specialists could find far more sophisticated schemes that would lower the burden on not just day traders.

Yes, I agree that less day trading would be a good thing, especially as practised by financial organizations with sophisticated computer algorithms.

 

[Leftus]

My impression was that would still be left up to congress sometime down the road.

You would run into problems trying to dole out specific shares to specific states. Does CA get more than TX? How would the states budget? Could they add on their own percentages in addition to the national tax? If it is left to congress to pick and choose who gets what amount of money, the larger states could really stick it to the smaller states.

Keep in mind that many states income tax is based off of the federal income tax system, So they will have to do something. Wholesale removal of the income tax system for an entirely different system isn't free either. If the states keep their income tax, businesses will have to contend with trying to comply with two different tax schemes.

 

[CORed]

They don't address how they would dole out the taxes to the states despite saying they could get rid of those taxes too.

That part of the proposal is not realistic. I don't think it's even constitutional for the federal government to mandate state tax policy, and it's almost certainly not going to fly politically. Of course, states could implement a similar tax, but this would require legislation in each state.

 

[bam]

You would run into problems trying to dole out specific shares to specific states. Does CA get more than TX? How would the states budget? Could they add on their own percentages in addition to the national tax? If it is left to congress to pick and choose who gets what amount of money, the larger states could really stick it to the smaller states.

Keep in mind that many states income tax is based off of the federal income tax system, So they will have to do something. Wholesale removal of the income tax system for an entirely different system isn't free either. If the states keep their income tax, businesses will have to contend with trying to comply with two different tax schemes.

"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.

Phase II: Social security payroll taxes would be rolled into the APT rate.

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.

There may be a small upward rate adjustment required to accommodate Phase III. However, the possibility exists that the multiplier effects of Phases I and II will generate more than enough revenue to incorporate Phase III."

I don't see any further specifics but I could easily see each state determining their own tax rate and having their share refunded back to them. I don't see why different rates in different states would be that hard to handle, we do it all the time with sales tax in different counties and states. While it might require an amendment how many US citizens will turn down an opportunity to have some of their tax burden footed by foreign governments?

 

[bam]

That part of the proposal is not realistic. I don't think it's even constitutional for the federal government to mandate state tax policy, and it's almost certainly not going to fly politically. Of course, states could implement a similar tax, but this would require legislation in each state.

"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.

There may be a small upward rate adjustment required to accommodate Phase III. However, the possibility exists that the multiplier effects of Phases I and II will generate more than enough revenue to incorporate Phase III."

It may not be perfect and it may not be popular with day traders or foreign investors but the minimal amount levied on each transaction will keep long term investors happy and ridding the market of some of the manipulation would be a good thing. I'm certainly no expert but I haven't seen a better proposal yet. I'd love to hear about any that anyone else wants to discuss and compare to the APT tax.