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THE AUTOMATED PAYMENT TRANSACTION (APT) TAX: A proposal to the President's Advisory Panel on Federal Tax Reform
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Abstract
I propose the replacement of our current system of individual and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive “revenue neutral” Automated Payment Transaction (APT) tax. The APT tax consists of a flat rate tax levied on all voluntary transactions. The total volume of transactions represents the broadest conceivable tax base and therefore requires the lowest conceivable marginal tax rate. Since the efficiency (misallocation) costs of a tax system tend to rise geometrically with the marginal tax rate, a massive reduction in tax rates can save an estimated 300billionofmisallocationcostsassociatedwiththecurrenttaxsystem.TheAPTtaxisautomaticallyassessedandcollectedwhentransactionsareroutinelysettledthroughtheelectronictechnologyofthebank/paymentsclearingsystemwithnodeductions,exemptions,orexclusions.TheAPTtaxalsoimposesanautomaticallycollectedtaxoncashasitentersandleavesthebankingsystem.AllincomeandinformationtaxreturnsareeliminatedastaxesaredigitallyassessedandcollectedbythefinancialequivalentoftheE−Zpassthatisnowusedtospeedtrafficthroughatollboothsystemonhighways.Theannualsavingsincomplianceandadministrativecostsareestimatedtobe200 billion per year. Unlike the “Fair Tax” or “National Sales Tax” proposals which are highly regressive, the flat rate APT tax introduces progressivity through the tax base since the total volume of transactions includes all asset transactions involving exchanges of titles to property. The wealthy carry out a disproportionate share of these asset exchanges and therefore bear a disproportionate burden of the tax despite its flat rate structure. The perceived fairness, even handedness and simplicity of the APT tax will greatly reduce tax evasion, which the IRS estimates to total 325billionperyear.Likealltaxes,theAPTtaxcreatesnewdistortionswhichmustbeweighedagainstthebenefitsobtainedbyscrappingthecurrenttaxsystem.Scrappingthepresenttaxsystemtaxpromisespotentialbenefitsestimatedat825 billion annually. The proposed APT tax is simple, comprehensible, fair and efficient, with minimal administrative and compliance costs. The burden of proof therefore rests with APT tax opponents who must demonstrate that its costs exceed the $825 billion of potential annual benefits.Tax reform; administration and compliance costs;equity; efficiency; flat tax;