In another thread someone challenged me to come up with some solutions to fix Social Security rather than just complain. So I got to digging around. I came across something very interesting. It seems that an economist, Dr. Edgar Feige, has some rather interesting ideas on how to reform the tax system that would balance the budget. I would like to know what people here think about it. Automated Payment Transaction Tax Overview Here is a link to Dr. Feige's paper Taxation for the 21ST Century: the automated payment transaction (APT) tax
$3.5 trillion? That is about $2.2 trillion more than the FY2011 budget deficit, and about $2.4 trillion more than the FY2012 budget deficit. It is highly unnecessary from a public finance standpoint. A much more practical option would be to eliminate all tax expenditures. According to a recent Tax Policy Center analysis, the IRS tax code consists of approximately $1.3 trillion in tax expenditures. Eliminating all of them would balance the federal budget. Furthermore, a typical rule of thumb regarding scholarly articles is that they lose their credibility after ten years. Considering this article is over twelve years old, I am highly skeptical of its findings. There are certainly exceptions to the heuristic method, yet in this case, I do not think an excuse can be made. Nevertheless, I do see some merit in a transaction tax. A good area where such a measure should be implemented is in terms of financial transactions, namely in high volatility/unpredictability areas such as day trading or derivatives markets. Doing so could dis-incentivize the creation of securities that pose significant systemic risk to the global financial system. This would minimize financial shocks/negative externalities, and increase robustness in financial markets.
First of all thanks for the response. The point is that the APT tax is meant to replace the current income and social security tax. As such it is not a supplemental tax meant to simply extinguish the deficit, but rather it is meant to cover all government outlays, including Social Security and Medicare, in a fiscal year. The 3.5 trillion dollars was the proposed budget for 2010. Therefore the rate was a demonstration of how the tax could cover all outlays for 2010. That may balance the budget but it would likely have adverse effects on the economy. Given the weak economic environment that we find ourselves in, such an action would effectively substantially raise taxes and take funds needed to drive consumption out of the economy. I disagree in this case. If the object of the analysis has not changed, the methodology has not been found to be unsound, or some new device has not been discovered for yielding additional insight into the object of analysis, then the research has likely not lost it's relevance. I have seen nothing that demonstrates that any of these criteria has been violated, and as such the research is as valid today as it was ten years ago. Well I have had experience with the high frequency trading of computers on the stock market. I think it distorts prices and adds too much volatility to the market. As such I agree that, at the very least, some sort of financial transaction tax be implemented as soon as possible.
I see. Well, if that is the goal, then I do not believe it needs to be pursued. Of course, this is using the ceteris paribus assumption. Not keeping other factors the same, I would think the implications of the APT tax would be to eliminate all other taxes. If so, then I agree that the public finance capabilities are fantastic. Yes it would, but it could easily be counteracted by lowering marginal rates and shifting the value ranges of income brackets. There have been few analyses on an APT tax other than Feige's scholarly articles. The majority of transaction tax analyses are with regards to a Financial Transactions Tax (FTT), which has gained much more media buzz. I agree.
The hearts of Republican congresspeople burn with hatred for obama. How is he going to persuade them to engage in tax reform?
I'm not sure which things you are referring to as being kept equal, but recall I think restructuring the tax code would require a complicated shell game. The APT tax is much more simple. Furthermore we should devote some resources to performing rigorous analysis to insure the feasibility of the idea. It's benefits would definitely be worth the effort should the idea prove to be of merit.
We are all to eager to increase income. When are we going to look seriously at the spending side? Can we defend the country for far less than we are currently spending on the military? Is there a compelling need for SSI to kick in a 62, and Medicare at 65? Are people that age as incapable of caring for themselves as someone out of work? If you are ready to retire, you can expect to live past 80. Is 65 as old as it was in 1935? Is our welfare system effective at helping people to get off welfare? If we had a system that helped people get off in 1 year, it would be far easier to help those that really needed it, and deter the scam artists. That addresses the major spending, but there are a lot of lesser expenses that can be evaluated for effectiveness? Has federal oversight of education really helped? Are subsidies to farms, corporations, artist, etc. really effective? Would detox centers have been a better expenditure than the war on drugs? It seems we want to send the kids out to work at the local 7-11 (after all, they are the ones that will pay off the debt), so mommy and daddy can keep using the credit card to buy their every whim.
Of course we can. We currently spend more than every other nation on the face of the Earth combined on defense. Furthermore, by our over aggressive defense policy we are making matters worse. The doctrine of preemption is a particularly troubling development that is creating more enemies than it is destroying. There is no reason why the retirement age should be increased if the tax system is reformed as Dr. Feige has proposed. Tell me how working until the day you die increases the quality of life.
So, I should increase taxes on others so I can retire, even though I am fully capable of working for the next 10 to 15 years (I'm 62).
No you should not. The APT tax increases the tax base and would balance the budget without a severe tax burden on anyone.
SSI will increase by at least 20% (as a percentage of GDP) over the next 10 to 15 years, then level off (at 2% of GDP over payroll tax reveneu) and Medicare will almost double, then triple, then..... How does tax reveneu goe up over $1T, but no one is seeing anymore taxes? Cash transactions are missed, or are missed after the first transaction (the withdrawl), until redeposited. The underground economy is completely missed.
Recall that the tax base is quite a bit larger under this system. Not only that, but the estimates quoted previously were based on only half of the tax base to be conservative. So the revenue potential could be even larger. Not only that, but the tax based should expand with the passage of time. More people should mean more transactions and thus a larger tax base. WOW! Excellent question. This has already been taken into account. Here's the answer:
The "tax base", no matter how it is made, comes from the US economy. The only way to increase the tax base (at least temporarily) is to tax the children's future earning, which they have already done with the debt. Being my contributions to SSI and Medicare have already been spent, the money I get will come from others. I'm in good health and fully capable of supporting myself, as are a significant number of those currently on SSI and Medicare. Why do we need welfare? Most will take it, many even argue that it is all their money (less than 50% of it is, and the number will get larger over the next 20 years). It would take no time at all to convert much of the economy to cash, with 2500 tranactions between withdrawl and deposit.
I was referring to other taxes with regards to my use of the ceteris paribus assumption. Furthermore, besides the benefits to public finance, income, and wealth, what are the automatic stabilizing capabilities of an APT tax? Although the tax is progressive in terms of dollars and cents, is the lack of progressiveness in rates a hindrance upon fiscal policy's ability to increase revenues during expansions, and decrease revenues during contractions? I do not know, but I would be interested in finding out.
What is done in this case is that you create a larger set of taxable items, but you tax each item in a very small way. By balancing the budget as a result, you actually free up the income of future generations in that they are saddled with less debt. That's impossible. The size of M1 would not support it. Furthermore it would be way to cumbersome for people to deal in such large amounts of cash. Where would they store it, if not in a bank? Where is someone with 20 million dollars in going to keep that kind of cash?
I understand. When I went back an looked at what you said, I understood what you meant. Now that's a very good question. Perhaps it could be tweaked, but then that would take away from it's simplicity, which is a very attractive feature. Off the top of my head, without compromising privacy, you could categorize transactions. Business transactions could be in a separate category from a personal transactions. You could create sub categories and then tax the transactions from the different categories at a different rate. If say you thought businesses needed more capital for investing in hiring new people, you could lower the transaction rate on that category. Just saying. But honestly, I can't give you a solid answer. That's a very good question though. Thanks for bringing that up.
We haven't balanced the budget recently other than when the tech boom combined with Bill Clinton's tax increases, the Contract with America's cost cutting, and more payroll tax than SSI & Medicare disbursals. That balance disappeared with the tech crash, it only got worse with the Bush cuts. Are you assuming politicians will see no other critical issues that need to be fixed? The retiring baby boomers will increase SSI significantly, and Medicare hugely. The workforce will shrink as Gen X'ers replace boomers, shrinking the source of income. That requires significant increases in tax rates. QUOTE=precision;1062140429]That's impossible. The size of M1 would not support it. Furthermore it would be way to cumbersome for people to deal in such large amounts of cash. Where would they store it, if not in a bank? Where is someone with 20 million dollars in going to keep that kind of cash?[/QUOTE]The drug lords have been working large dollar transactions for years. I'm sure we could adapt their methods quite quickly.
Part of the problem is that under the current system many people pay no tax. Under this proposal everyone pays a little. Therefore it has great revenue generating potential. Again, that professor is an expert in the underground economy. Even drug lords go to the bank eventually. When they do so, the cash transaction is taxed at a higher rate.
Which means there is far less incentive to control spending - just what I want to hand those idiots in Washington.... In Mexico or Columbia. And eventually isn't every 2.5 transactions, more like every 15 transactions. The point is taxes change behavior to reduce taxes. Because of that, the income will never be what it calculates out to. The other point is it will never happen because politicians trade "campaign contributions" for favorable taxes, regulation, and pork.
Because the overall tax burden on individuals would be reduced under this plan, they will have more money to spend. That will create more jobs which will reduce the need for public assistance programs. If the people then insist on the military budget being cut, spending would be reduced. You have forgotten that the estimates where based on half of the total amount of transactions. That should more than suffice to handle your contention. Then voters need to be educated. They will then elect politicians to do what is needed.
I don't care how you spin it, the government will be getting 30% (or more) more money - that has to come from somewhere in the economy. For every dollar the government gets, there is a dollar less to spend. If we broaden the base into the poor, then increase assistance to make up for that - did we really incease the base? US Business is already saddled with needless regulation. If we increase the tax on business (which makes up a small portion of the current tax reveneu), business will be less competitive on the global market. More would move, or fail. Does that stimulate the ecomony?
Actually the tax money that the government extracts becomes a major portion of GDP. As a result, it is not necessarily true that for every dollar the government gets there is dollar less to spend. The tax would be so small on the poor that it's effects would be negligible. And again, because of increased spending, there would be more jobs available for the poor. The effects on businesses would be offset by an increase in consumption.
Then we aren't really increasing the tax base, just increasing the tax on the rich and business enough to increase reveneu by 30+%. Then a 100% tax would have no more effect on the economy than a 0% tax. That is not the case. Money I get from my employer is in payment for a level of productivity that exceeds what I get paid. When I collect SSI or Medicare, I get money to not produce. Entitlement spending, the major federal expense has a "multiplier" less than 1. Corporate welfare, farm subsidies, payment to not produce, the same. Increased government spending, means more money flowing through the government multiplier of less than 1. GDP drops, less total spending. Fewer jobs. No.
Often, even the IRS doesn't agree how tax law should be applied... Watchdog says tax law too complex for most filers Jan 9,`13 WASHINGTON (AP) -- The nation's tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements. That's the equivalent of 3 million people working full-time, year-round.
Here's a simple fix: Cut all federal spending except for military and justice then impose a flat sales tax rate of 5%. Poof! Done!
