Is it possible to have a tax system which is simple, efficient, progressive, and revenue neutral? And one that replaces all those taxes listed above? As it turns out, Yes.

Capitalizing on financial data processing technology, we can create a tax system for the 21st century that is simple to understand and easy to administer. The concept for this transaction tax was developed by University of Wisconsin Professor of Economics Edgar L. Feige, who refers to the idea as the Automated Payments Transaction Tax.

You can find Professor Feige's original papers detailing the Automated Payment Transaction (APT) tax by clicking the links to the left. The papers describe a simple plan to replace our current complex system of federal and state income, sales, excise and estate taxes. It's not rocket science; it's actually just simple arithmetic.

More supporters of this concept have developed a new website and Facebook page to explain Dr. Fiege's concept and get people discussing this great idea. Here are the links.

The Transaction Tax website

The Transaction Tax Facebook page

What is the APT? In order to raise the same amount of revenue as our current tax system, a "revenue neutral" APT tax would impose a single tiny tax rate on each and every transaction in the economy. This transaction tax would completely REPLACE our current system - not be added on to it.

Since the volume of all transactions is estimated to be 100 times larger than the current tax base, the flat tax rate needed to raise the same amount of revenues is just a hundredth of the current average tax rate of roughly 30%. So if transactions stayed at their current level, the APT tax rate would be three tenths of one percent (0.35%) on each transaction. Even if total transactions fell by 50%, the revenue neutral APT tax rate would only be six tenths of one percent (0.7%) split equally between the buyer and seller in each transaction so each would pay 0.35%.

Feige details how the replacement of our current tax system with an APT tax could save the government and its citizens as much as $500 billion annually by eliminating the compliance, collection, enforcement and inefficiency costs of our current tax system. Additional savings would accrue society in general, which are impossible to compute. Just think of all those beautiful trees that will be left standing when we stop printing the 70,000 page Tax Code and the millions (maybe billions) of copies of forms with instructions still being used at both federal and state levels.

How would it work? Consider a family with an annual income of $60,000, paying $20,000 in interest and mortgage payments on their house and spending $40,000 on all other items. The family has total transactions of $120,000. Today that family would owe roughly $20,000 in total taxes. Under the APT tax, with a rate of 0.7% they would pay $210 (.35% x $60000) on their income receipts and $210 on their expenditures for a total tax of $420. Their employer would pay $210 tax on the income payment, the mortgage company would pay $70 on its receipts and the merchants receiving the family's $40,000 of other expenses would pay another $140 in taxes. In total, the government would receive $840. And all the taxes would be automatically assessed and paid without filing tax returns.

How then does the government collect enough taxes to pay its bills? Most of the revenues would be collected from the massive volume of stock and bond trades and foreign exchange transactions none of which are now taxed. One might be concerned that imposing taxes on these types of transactions would stifle economic activity in these critical areas, however, the tax is so small it would be dwarfed by the simple fluctuations in price that typically occur during the trading process. Although "day trading" and short term foreign exchange transactions will certainly decline, the reduction in these "hot money" transactions are only likely to reduce speculative market activity, thereby reducing the volatility of prices in these markets.

Although every voluntary transaction is assessed the same low tax rate, the APT tax achieves equity and fairness because the wealthiest portion of the population executes a disproportionate share of financial transactions, whereas the poorest members of society engage in relatively few financial transactions since they have so much less wealth to manage. So it's inherently progressive.

How will the APT Tax system work? Every bank, brokerage, or other financial account established by a person, corporation or other taxable organization will pay 0.35% on ALL funds moving IN OR OUT of that account. The tax would be automatically transferred to a federal government tax collection account in the same institution. This will be true for stock, bond, options, and futures traders and investors; foreign citizens, companies and governments exchanging their currency for US dollars; a couple buying a new car (no more 8.25% sales tax, instead 0.35% APT tax); and, a teenager buying movie tickets with a credit card. The movement of funds is taxed and collected immediately without recording who or what was the source of funds or the recipient. This automated system would totally eliminate the need for filing tax returns and information returns, freeing individuals and businesses of enormous costs of tax compliance and greatly reducing the government's costs of collection and enforcement.

We want to thank Professor Edgar Feige of Wisconsin for his revolutionary concept and research. This is a totally non-partisan, informational website. Hopefully more and more taxpayers will recognize the huge advantages of the APT and demand it receive attention and consideration. For comments, questions, or feedback please email us at administrator@apttax.com

If you'd like to be kept up to date with APT Tax developments, please add yourself to our mailing list.

William J Hermann, Jr. M.D.