Tuesday, May 24, 2005

Michael: Holy Flat Tax Batman!

A long-time shibboleth of Conservative philosophy has been the institution of a flat tax. Every Conservative ideologue worth his salt has seriously toyed with idea. One of the most offensive things to Conservatives about our current income tax system is its progressivity; it takes a larger percentage bite as your income rises. Many Republicans just shake like outraged Chihuahuas at the thought of having to pay a larger percentage than a Wal-Mart employee. Wouldn’t it be ironic if the tax haters got a flat tax rate and it still gave them indigestion because it was even more progressive than the current system?

Well, that’s exactly what the UniTax does. It is a flat tax, not on income, as so many Conservatives dream of, but on ALL financial transactions. That’s right; from groceries to corporate arbitrage and foreign exchange, every financial transaction is taxed. Seems like a nightmare, right? But with the increasing use of electronic transactions, especially for large transactions, the cost of compliance and administration shrinks to nearly nothing. The IRS would practically whither away and you wouldn’t have to file an income tax return ever again.

At the same time, the tax base, which is now mainly personal and corporate income, would explode 100 fold, and most of that new tax base is heavily skewed to the wealthy. That means the UniTax takes its progressivity from economic distribution, not rate change. As wealth becomes more evenly distributed, so would the tax burden. The much greater tax base also means the UniTax rate could be 100 times lower and still preserve revenue neutrality. Economists estimate the new UniTax rate would be just 0.30%, or 30 cents on $100. The average person would pay pennies on the dollar of their current tax burden, but the super-wealthy, who are responsible for the vast majority of financial transactions, would pay a much greater proportion of overall taxes than they do now; though unless they spend more than their net worth every year, they would still pay less than 1% per annum. Would you want to argue that your freedom and the American dream weren’t worth less than 1% of your net worth? Didn’t think so.

The ideologues would get the flat tax that they are always mooning about (and they can’t complain about it from a principled position without revealing that they just wanted lower taxes on the rich all along) and the rich would pay more of the nation’s taxes, resulting in a more progressive, more efficient, and politically more difficult to subvert tax code, and the poor and middle class would get well-deserved tax relief. And everybody is shut of the IRS. The UniTax is a one of those rare beasts, a gift that gives everyone what they say they wanted, as well as everything they so richly deserve.

For more information on the UniTax, AKA the Automated Payment Transaction (APT) tax, visit the web site of the idea’s creator. If you are a blogger, please blog about this taxation system, too, and help bring awareness to this great idea.


At 10:57 AM, Blogger Jack Benway said...

Under a guise of fairness (that you largely debunk in your post), this may be the most coercive and evil tax structure I've seen proposed. By taxing financial transactions of any sort, the UniTax would discourage investment, commerce, and all economic activity. It will encourage hording of capital, offshore investment, and a growth of a black market. If money is taxed every time it changes hands, people will rightly find ways to hide the transactions or avoid them altogether. This turns the IRS into Robin Hood and his Merry Men, looting the rich to provide unearned money to the poor.

Since when is the goal of taxation to redistribute wealth? Isn't the purpose of taxation to provide government with sufficient funds to maintain a basic level of services?

At 4:25 PM, Blogger Michael said...

If you discourage everything slightly (it is only 0.3% we're talking about), don't you level the playing field and ensure that transactions will be taken without regard to tax consequences? Seriously, you could say that the sales tax, running at a hefty 5-9% of retail sales is a horrible disincentive to retail trade - and you would be right! ANY tax imposes a burden somewhere, the trick is to make sure it's not too harmful to the economy and imposes as few market distortions as possible. UniTax, with it's extremely low rate and universal application does both things very well.

UniTax would discourage financial trasactions at the margins, but what would the result be? Less volitile markets, longer capitalization holding periods, greater savings rates, less churn in the financial instruments market. These are good things. So where's your beef? That the very wealthy would pay a greater share of the tax burden? How can you complain when they are paying exactly the same rate as everyone else. Isn't that what conservatives want? Or do they really just want the wealthy to be free of taxation? Seriously, we're talking about $3,000 on a $1,000,000 transaction. That's peanuts. Consider it Patriot Change.

At 4:30 PM, Blogger Michael said...

Perhaps I didn't make it clear enough in the post that this tax would replace ALL other Federal taxation. No more income tax, no more excise, no more estate tax, ever. In return, a low and consistent 0.3% transaction tax. I just can't bring myself to see that as more "evil" and "coersive" than the current tax system. Plenty of evil and coersion there to be sure. Every year we have to open our financial life to the world to do our taxes. With UniTax, it's almost entirely pay as you go and forget about it. You don't have to track your transactions and you don't have to put your financial neck on the IRS's chopping block, either.

At 7:16 PM, Blogger Jack Benway said...

The claim that everyone is paying the same rate hides the fact that in a system where any transaction is taxed, the those with the most transactions (the wealthy) are taxed on far more grounds than those with less wealth.

Consider the application of UniTax to inheritance. Here's money that has been taxed once already (when it was earned). Upon transfer to a next of kin, the lump sum would then be taxed again. If it were then reinvested, it would be taxed again, even to the extent that it might be reinvested withdrawing a profit.

While a consumption tax isn't perfect, it does limit the transactions that are taxable. There's a tax when you buy something. That's it -- no tax on interest, no tax on income, no tax on giving your kid an allowance. I'd much rather see a national consumption tax replacing the current tax code than a UniTax. The rich will still pay more taxes than the poor (they buy more stuff), everyone will be taxed at the same rate, tax code will be simple, but there are no hidden barbs against the wealthy.

At 11:57 PM, Blogger Michael said...

A consumption tax could never fly. To be revenue neutral even flat tax mavens admit that it would have to be 30 to 35%. That would cripple commerce and place an intolerable burden on the poor (unless you factored out food and clothing and shelter thus destroying the efficiency of the concept, introducing market distortions, and begging for every special interest to lobby for a break). That's probably a low ball estimate, too. Many think a consumption tax would have to be as high as 40 to 50% to be revenue nuetral because consumer purchases are such a small slice of economic activity. Why would one want to disincentivize consumtpion anyhow? That's just asking for a depression. Better by far to take a small slice of each transaction, spreading the tax burden over much more economic activity. There would be side effects, such as dollars having lesser velocity in the economy, but monetary and mecoreconomic policies would have a easier time compensating because of how uniformly the tax impacts economic choices.

The whole idea of double taxation you introduce is a specious. There are already many instances of a double taxation in our current tax system, especially if you consider different taxing authorities and, besides, there is nothing magic about handing money to someone else that makes it ethically taxable once again. As I suspected would be the case with conservatives, your real concern is for the welfare of the rich, not fairness or simplicity or efficiency. You are simply engaging in class warfare. I think you are misguided however. Having made large sums of money in the course of my life, I can tell you a %0.3 tax rate on all my transactions looks much better than an income tax of 35% or more, a capital gains rate of 15 or 35%, and an increasingly unpredictable estate tax. If I'm investing in productive capacity for the long term (which is why the accumulation of large personal fortunes is considered a social good), I will pay much less in taxes with the UniTax than under any other tax system, unless of course I cheat the other systems or manage to gain a public rent in the form of tax preferences for certain economic activities. Add to this the efficiency of collection and the low cost of compliance and enforcement and the much less intrusive method of collection, and wealthy people will be havening their wealth in America, not other way around, as you imply.


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