Taxation Reform via an Automated Payments Transaction Tax by Jim Turner and Terry Patten

Recommendation: Indicate US support for the international movement to reform taxation via an Automated Payments Transaction Tax

The Automated Payments Transaction Tax as developed by University of Wisconsin Professor of Economics Edgar L. Feige, offers an ingenious approach to funding government. It proposes to serve as a replacement for all existing federal taxation. Although it becomes practical to implement only when simultaneously adopted by the preponderance of the other G20 nations (and therefore requires a long view), it promises an approach with the most efficient, fairest, freest of political manipulation, and least economically-distorting approach to tax policy.

“In its simplest form, the Automated Payments Tax (APT) consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking payments system. The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base. The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure. The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost.“ Dr. Feige, The Automated Payment Transaction Tax Taxation for the 21ST Century

This tax would also be levied on trading and stock purchases which currently are not taxed. The amount of the tax could be very low, certainly not much more than ½ of 1% of each transaction.

There has been broad political support of APT due to the simplicity of structure, ease of collection, fair apportioning of tax burden, and the overall dramatic reduction in tax rate for all taxpayers. As the implementation of a tax restructuring of this scale requires international support, we request that as tax reform develops internationally this administration take a leadership role in supporting a collaborative G20 movement toward adopting APT. It may not be realistic for this approach to be enacted by all the necessary international parties during the next four years, but it is entirely realistic that the international movement towards this true reform of taxation can be furthered dramatically by the administration, simply by using the “bully pulpit” to call for a move in this direction.

It might even be possible for the US to pass a law that would not become effective until a critical mass of nations pass a similar, coordinated law. This kind of “simultaneous policy” enactment breaks down the barriers to addressing the many world problems that require coordinated international engagement, so advocacy for this approach also has a beneficial process effect, by raising awareness of simultaneous policy approaches.

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