Say, What About a Transaction Tax?
From reader Tim Whitley, Sr.:
I have one that I have not seen. I am curious what reaction it would get.
The idea is to replace our tax system not with a “flat” or “sales” tax, both of which carry a negative connotation and have many pitfalls. But with what I will term a “transaction” tax. I understand (and have no way to verify) that over one trillion dollars changes accounts (if that is what is measured by the GDP) every month. I am not sure it is not more. If that is indeed true then the percentage taxed on this amount would be smaller than any other system I have seen. And also would be the most fair system I can imagine.
For this system to work and not tax any particular individual or group unfairly, every transaction at every level must be taxed. This tax must be built in and there must me no exemptions or deductions for anything. In this system everyone would participate. Those who had larger transactions would naturally pay a larger amount. Those who had lesser transactions would naturally pay a smaller amount.
This would be an embedded tax and would not be subject to any individuals interpretation. I am not sure it has to be any more complicated that this. The rate would be based on the previous year’s GDP.
For this to be most effective it should replace every other tax.
There are those who pay nothing into the system, both on the low income side and the upper income side. This cannot be fair. Positive incentives could be used for business investment and charitable contributions. I don’t know exactly what these would look like. I only know that our current system penalizes those who work the hardest and rewards those who work the least.What am I missing in this system?
I would love to throw this idea into the ring and see what comes back. I thought at one time that a national sales tax was the answer but I can see that they would probably offer exemptions and still put the burden on the wrong people.
I appreciate your consideration and hope that you can introduce this idea.
Have at it, guys.
This would seem to defeat the best reason to have a national consumption tax: to ensure that imported goods and domestically-produced goods are on the same playing field when it comes to taxation.
It wouldn’t adequately prevent the poor from having to pay taxes like the FairTax would.
A trillion dollars is not that much between 400 million Americans – I make it $30 000 a head, if you mean a million million. So a rate of 1% per transaction only brings in $300 a head and much above that would have many consumers closing bank accounts to pay cash.
The real figure of transactions is probably several orders of magnitude higher at several million per citizen. Most are big financial deals, buying and selling billions worth of bonds or foreign exchange with tiny margins. If you could tax that you would indeed have a free lunch, but the deal makers would soon be based out of London or Tokyo rather than Wall Street.
I am concerned about talk to replace the Federal Income Tax with a use/sales tax and have not seen my issue addressed in the discussions. As a homemaker whose husband draws Social Security and VA Disability, my husband and I do not file a Federal Income Tax return. What will become of us financially if we are forced to pay the high sales/use tax rate? The country is getting older as well, and I can only envision pensioners like ourselves heading toward financial disaster if this plan is implemented without some sort of exemption at the cash register.
Neva, it all depends on how much you spend. Under FairTax, you and your husband will be compensated for the tax on the first $30,000 you spend each year. Which means, if you only spend $30k, you don’t pay any taxes. If you spend $40k a year, your tax rates ends up being about 7%. And it continues to gradually go up.
Also, you may not know it, but you’re already paying a lot of taxes. About 22% of the price that you pay for anything is embedded taxes. Basically, since corporations have to pay income and payroll taxes, they just pass the cost of those taxes onto you… the consumer. Under FairTax, those corporation taxes are gone… which means the corporations can lower the price of their goods.
So back to how much you spend a year… If you spend less than $30k a year, you’ll be compensated for all your taxes AND you’ll experience a lower cost of living.
Neva,
I’d like to point out there is a COLA for those on Social Security built in to the FairTax legislation. I believe it’s enough to cover the entire tax if prices don’t fall, but I’m going on memory so I’m not entirely sure. Plus you will get the prebate as Tanner said.
It doesnt have the giant defects of FT, but there has to be some defect, some winner and loser. If you can define who those are, great.
I know the Fairtax if fatally flawed, for reasons I wont go into here because of space. And we do need something simple, that doesnt over tax nursing home patients, cancer patients, and others who spend all their income just staying alive — and would be taxed on it.
Further, we need something that cant be twisted, like lobbyist twist the tax code. Everytime a lobbyist gets to screw up the tax code — its the average joe thats left over paying his share, and other’s share.
Tax Skeptik Mark, ya got my curiousity going: in what way is FT possessed of a terminal flaw and by what method was that flaw discerned?
And where will that discovery be detailed?