However, it does bring up an issue for us. We need to find a coherent approach to taxes and reform that gives us a chance to correct the Bush deficit nightmare AND address Social Security and Medicare underfunding AND wage and employment stagnation AND social necessities such as universal healthcare and quality education funding. Although K/E have pragmatic positions and ideas for all of these in the short-term, they don't form a coherent approach for the medium and long term. The Repugs will, once they're in the opposition again after Nov 2, have a field day trying to divide and conquer our agenda (diary) with the "how will it be paid for?" and "it doesn't add up" and "taxes are stifling our economy". We can probably keep fighting this old fight for a while (with renewed vigor thanks to the appalling ineptitude of the Bushcons), but I think we have an opportunity to support an approach that will change the lines of class warfare permanently for the betterment of us all.
The idea I like is the Automated Payments Transaction tax (APT tax) which was proposed by a retired U of Wisc economics professor, Ed Feige. His paper and a forum discussing the proposal are online. Interestingly, this idea appeals to the economic libertarian conservatives and has recently been promoting on some right-wingish radio talk shows. But, I believe it cuts very well for progressives as well and I'd prefer that we be in the discussion from the beginning. Check it out and let me know what you think. I summarize the idea and discuss its possible implementation and political implications in more depth below the fold.
The APT Tax is simple in concept, efficient to collect, progressive in their economic impact, and revenue neutral at a very low rate (well less than 1%):
How then does the government collect enough taxes to pay its bills?
The secret to the low tax rate is the expansion of the tax base by a hundredfold
How is it a progressive tax?
Let me add that the APT Tax is a use tax. It taxes the use of our financial systems guaranteed and supported by the federal government that enables the US to be the envy of the world. This kind of tax can be framed (ala Lakoff) as a reasonble fee to charge for the use of US financial and legal systems. The more you use this system, the more you pay. Seems fair to me.
How will it be collected?
The potential annual savings from changing the IRS charge from collecting the melange of taxes it currently does to monitoring very closely the few thousands of financial institutions involved in collecting the APT tax is estimated to be $200-500 billion (depending on various assumptions).
Since the APT tax is only collected on non-cash transactions wouldn't cash transactions go untaxed (more than they are at present)? Currently only 6% of transactions are cash. The proposer, Dr. Feige, is a leading expert on underground and cash economies and thus suggests the following to capture efficiently the APT tax on cash transactions:
Suppose we like this tax idea. How to implement it? My preference (different from the original proposal) is to break it into several phases:
Phase I: Pass legislation and funding to develop the relatively easy software tools to build APT tax collection into the funds settlement software already being used, along with extensive security and debugging testing.
Phase II: Enact the APT tax at a very small rate (say 0.001%) for no more than one year without offsetting any taxes. Use the amount collected as Congress sees fit (how about paying down debt/deficit a bit). This should give an empirical test of the revenue that can be collected using the APT tax and a shakedown of collection or security issues, without risking financial collapse.
Phase III: Enact the APT tax at a rate needed to offset payroll taxes completely for both employer and employee. Also, eliminate gift, estate, and excise taxes by replacing them with APT taxes. This would give a strong stimulus to spending (more take-home pay) and to employment (reducing cost to employers) and to investment (more money in circulation). Since the APT tax will also tend to raise prices slightly, the Fed would need to tight up the money supply to prevent an inflationary bump. This step gives tax relief to all sectors (from low- to high-income taxpayers)
Phase IV: Slowly and gradually replace income taxes (federal and state, individual and corporate) with APT taxes by raising the APT rate and lower the rates for the income taxes. More tightening needed to keep the stimulus from being too inflationary. This may take several years to phase in completely. It would entail (possibly with constitutional amendments) the development of a distribution formula to pass some of the federally-collected APT tax to the states to offset their income taxes (there will be political wrangling on this point, I'm sure)
Phase V: Expand the state formulas to include an offset of sales taxes and (I would prefer) that part of the property taxes that go to public education. This puts public ed and basic state services on the same stable, but pay-as-you-go footing as the federal government. Local property taxes for running local governments would still be in effect at the end of the process.
How do you see this spinning out as a political idea? Is it a good one? Can it be maintained a bipartisan one? Where are the landmines and pitfalls?