I agree that most will look for any advantage they can legally get and some will go far past the legal stage if history is any indication.
What percentage are you estimating for loss of transactions if the APT tax was adopted?
I agree that most will look for any advantage they can legally get and some will go far past the legal stage if history is any indication.
What percentage are you estimating for loss of transactions if the APT tax was adopted?
State income and sales taxes are collected by the local taxing authorities. Also, local taxes are collected daily and fund day to day operations. So having it run through the Feds before it hits the states may not work as smoothly as people imagine.
The other thing is, how would banks decide where you live? I currently live in Texas. My family is in the CA Bay area. If we assume that TX would have a lower tax rate than CA, they could use my address as their "residence" for tax purposes and avoid differential taxes. Since the taxes are generated on money movement, and not place of employment, this would be a very easy dodge. I could see some states setting up residency status to take advantage of this loophole.
Until it gets deposited in a bank, it would go untaxed.
I don't think there would be any problem with banks determining where you spent the money and where the tax should revert to at that level. If you bought a house in TX the tax would stay in TX, buy one in CA and it stays in CA. Same with cars, boats, eating out, grocery shopping, etc.
I don't think there would be any incentive to cheat if it goes that far. There would be no income tax at the federal or state level, no state sales tax so no advantage there and any difference in state to state rates (if any) would amount to no more than 1 or 2 cents per hundred dollars spent.
"7. Isn't there a big loophole around the APT Tax by simply using cash?
We must remember from Dr. Feige's bio - his expertise is in cash and "underground economies" so this topic is pretty well covered. It is known that cash goes through an average of 2.5 transactions between leaving a bank or other tax collecting entity, before it returns. So a tax of 2.5 times the electronic single side rate would be charged on withdrawal and deposit.
Based on the rate we are projecting of 0.3%, that would mean a tax of $0.75 per $100 cash entering or leaving a "taxing institution/account". That sounds a bit onerous but consider that replaces all the other Federal taxes and, if we can come to the agreements required to implement Phase III (see FAQ # 3) instead of sales tax at $6 to $9 per $100 spent.
One would presume businesses dealing in cash might choose to add that minute amount to the purchase, as sales tax is added today, to compensate them when they deposit the cash in their accounts. Monies paid to what is now an external wiring service, like Western Union, for wiring out of the country, would be taxed at the cash rate on deposit and, again, at the "electronic" rate on actual wiring. The savings would be so minimal for small transactions to go to very much inconvenience to avoid the tax that small time evasion is anticipated as rare. Of course, there still is envisioned a smaller, leaner and acutely focused IRS or equivalent to watch the very large transactions, especially those with a foreign side."
So if I buy a house in CA to rent out, but live in TX, under which state am I taxed under?
It's not a question of if people will cheat the taxman, it's always a question of how much. Yes, they will cheat the taxman out of a penny if it's relatively easy. It's also been my experience that the larger the income, the more they look for the loopholes. Even if the amount in question is, by comparison, trivial.
Essentially it is all determined by the location of the "bank" that you use for your house buying transaction. The "bank" where you get your loan or withdraw a cashiers check collects one half of the tax - every transaction gets taxed at the reduced rate. When the money/check/electronic transfer etc gets to the "bank" that has the house for sale or is the deposit bank of the seller it will get taxed again at the reduced rate. If the money is withdrawn in TX & deposited in CA both states would get an even share.
Getting rid of the loopholes and lobbyists is why a tax like this has so little chance of being adopted. It's fair, less onerous, gets rid of the yearly hassle of preparing your taxes, gets special interests out of your pocket etc but a few wealthy people will lose their special loopholes and will spend millions or maybe billions to fight this tooth and nail. This will take a grassroots effort and a real politician to accomplish. The way our politics have polarized lately it's probably close to impossible. Can anyone see the Repubs and Dems working together closely enough to get something like this passed?
psionl0
Skeptical about skeptics
It is not my job to research the actual numbers. As the proponent of this system, the onus is on you to show that the numbers add up - in spite of any tax avoidance that might go on. It is not good enough to say that the tax bill for the average household will drop from $20,000 to $420 then say that the shortfall will magically be made up from "other people".
Don't forget that taxes on transactions is nothing new. To this day, (paper) checks still have stamp duty levied them (and in the past, stamp duty was also applied to receipts). Nobody has ever considered abolishing other taxes as a result.
Oystein
Penultimate Amazing
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The 0.02% most wealthy buy the nominees of both parties already. A grassroot movement has no chance against this.
The first order of business is a drastic campaign finance reform that completely eliminates private funding and thus rule of the oligarchy. After that, lots of good stuff becomes possible.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2486665
Feige, Edgar L., Taxation for the 21ST Century: The Automated Payment Transaction (APT) Tax (June 1, 1998). Economic Policy, October 2000. Available at SSRN: https://ssrn.com/abstract=2486665
Here's a link to a free download of Dr. Feige's paper. Perhaps the argument you seem to be looking for resides within? If so, let me know what it is and what number(s) you are specifically disagreeing with so I don't have to guess what maths don't add up for you.
I agree that transaction taxes are nothing new but the APT tax is a comprehensive idea that would never have been possible without the level of computer technology we have available lately. To compare it to a stamp tax is hardly fair. A much better comparison would be a flat federal sales tax without exemptions.
I couldn't agree more. I found this site, http://bigbatusa.org/balanced-budget/a-tax-revolution/ , but only had time for a cursory look so far. I will try to have a deeper look this weekend but others are obviously looking into this as well.
My Bank is located in San Antonio. I've never actually been in it. I do all of my transaction online. As a matter of fact, when I wired the money to buy the house I live in TX, I was on vacation in CA. My cell phone still has a CA area code despite living in TX for the last few years.
BTW, I work in TX, my boss is in DC, and my paycheck is cut out of Louisiana.
No, I don't seen any politician doing anything like this. The main reason is the tax code is used for social engineering. Generating income for the government seems to come in second at best.
psionl0
Skeptical about skeptics
I completely agree that the math doesn't add up for you but it means nothing to me or anyone else because you've given us no specifics to examine or refute. I may well agree with you if you explain your position but vague general feelings that it might not work won't suffice as a credible explanation and trying to turn this onto me is a ploy that won't work.
So far your position seems to be that the slowdown in financial transactions would be greater than the 50% anticipated and provided for by Dr. Feige. I can easily believe that possible due to the age of the paper and the increase in the number of day traders since it was written. However, you haven't provided a better number or even a range of numbers that you feel more realistic. Should I guess at your number(s) or perhaps start a contest where we use the Price is Right rules to get close enough to make you happy? I can't make your argument for you but I'm more than willing to have a friendly discussion if you can articulate what needs changed and why it needs changed.
psionl0
Skeptical about skeptics
I was specific enough to mention "escrow". Has Dr. Feige considered tax avoidance in his paper? Has he factored it into his calculations?
This is a skeptics forum. You can't say, "I have an idea - now prove me wrong". If objections such as state jurisdiction or tax avoidance are raised then the onus is on you to show (or find out) how those issues would be dealt with. I'm not going to wade through 80 pages of text* just to disprove a concept that hasn't been established yet.
* Full marks for not expecting us to view 5 hours of YouTube though.
As far as the APT tax is concerned it doesn't really matter where you live or work or shop. The feds get their cut no matter where it takes place and states would get their cut determined by where it takes place. The more convoluted the supply chain and amount of middlemen the lower the tax has to be.
Each state has the power to levy taxes. As does each county and city. If you strip them of this power, you have to figure out how they are going to provide what services and how much money they are to receive.
The APT hand-waving away state and local taxes doesn't solve the problem. Were I to go to my local supermarket, here in Austin, and buy foodstuff, the monetary transaction never leaves San Antonio. Both my bank and their bank are located there. The transaction would be deducted and deposited within the city limits of SA.
The point here, is that the APT will never be able to replace state or local taxes without introducing a number of methods to systemically cheat the taxman.
Simply put, yes, Dr. Feige appears to have thought this out and tried to account for everything possible. Tax evasion is covered in Section 5.4 if you have time to look into it.
"5.4. Tax evasion
Tax evasion is a major cost of the present tax system. The IRS (1988) projected 1992 unreported legal source income on individual income tax returns at $587 billion. Feige’s (1996, 1997) estimate of combined legal and illegal source unreported income for 1992 was $696 billion, giving rise to an estimated tax gap of $123 billion in that year.20 The General Accounting Office (1997) estimated the 1992 tax gap to be $128 billion.In addition to the macroeconomic consequences of this lost revenue, evasion has unintended distributive consequences, notably, it redistributes income from honest taxpayers to dishonest evaders and from middle income groups to both poor and rich.
Every tax can be avoided and evaded. The question is, at what cost? Since the APT tax is collected through the payment mechanism, it can be avoided by engaging in barter transactions. Except in very rare circumstances, barter is so costly as to reduce this loophole to insignificant
proportions.
Tax evasion through “offshore” cyberspace exchanges poses a more subtle problem that can be addressed by structuring appropriate penalties that provide serious disincentives for this type of evasion. The first of these contemplated by the APT tax proposal is to deny the parties to any untaxed transaction the right to enjoy the legal protections of the state. Therefore any “offshore” exchanges of property rights can be denied all of the benefits and protections of the “rule of law” in the nations that have established the APT tax. A second device, proposed by Kenen (1996) is to apply the tax at a penalty rate to all transactions made with financial institutions residing in tax free jurisdictions.
A more severe penalty would be for APT tax compliant nations to simply refuse to recognize any and all credits or debits from “offshore” havens or non APT countries that countenance “counterfeit” financial intermediary transaction exchanges. Every “offshore” exchange must have points of connection with the payment and clearing systems of the world’s important legitimate financial markets. But these connection points are also the Achilles heel of “offshore” tax havens, since once severed, the tax haven ceases to function. The force of this sanction grows in importance as more states adopt the APT tax regime.
The rapid expansion of Internet commerce poses special threats to the integrity of present tax collection systems. Under the APT system, Internet transactions that are paid by credit, debit or stored value cards pose no collection problem. Credit and debit card payments are taxed when the customer settles accounts with the card issuer and stored value cards are taxed when they are recharged with a debit to a financial account.
Technological innovations such as the creation of anonymous forms of E-cash (digital cash) that represent a private digital substitute for the government’s present monopoly of issuing currency can raise collection problems even for an APT system. Such E-cash could accumulate and simply be transferred from party to party without returning frequently to the banking system. If anonymous private digital cash is permitted to substitute freely for government paper currency, it can function as a tax evasion vehicle. Private digital cash also deprives taxpayers of annual seigniorage earnings of the Federal Reserve that are now returned to the US Treasury. Given these concerns it behooves the government to issue its own E-cash that would benefit from the natural network externalities that now accrue to paper legal tender. Under the APT system, the creation of private inside money designed to evade taxes would be illegal and treated as would be any attempt to counterfeit legal
tender."
You will have to point them out to me as I don't understand how an everyday citizen will do so. Will you travel to a different state to save $0.02 cents on your grocery bill? Fine, your state will probably make the difference up on your fuel bill. Plan on saving $1.60 by purchasing some large expensive item online from a low tax state? Ok, but the extra $350 freight bill doesn't seem to make much sense to me. I'm not trying to be difficult, I'm honestly not following what you are trying to relay.
Local taxes, as in property taxes will still be levied locally. I can't give you definitive answers as to how the state tax would work as there is no current mechanism or constitutional amendment to allow it at this time.