Posted inEconomics / Politics / Tax / ToMl

Tax payments instead of payrolls

What Constitutes a Payment?

A payment occurs whenever someone receives money. The following are examples of payments you may receive:

Depositing your paycheck.
Depositing the proceeds from the sale of your home, a car, or stock.
Receiving money through Western Union or a wire through your bank.

Under a payments tax, the party receiving money would be taxed at the rate of 1/10th of 1%, no matter the source of the payment, or whether the payment represents a gain or loss. In other words, if you deposit a check for $1,000, one dollar would be deducted from the deposit. In exchange for the inconvenience of being taxed on all payments that you receive, you’d be free of all payroll taxes, including social security taxes, medicaid taxes, capital gains taxes, and inheritance taxes. You’d even be free of federal excise taxes, which means:

Gas would cost less at the pump.
Your cell phone bill would be less.
The price of an airline ticket would be less.

You would pay a payment tax only once – only when you receive money and not when you spend money.

If you buy something at Walmart, for example, Walmart would pay the payments tax.
For Walmart, that means that they, too, would no longer have to pay corporate income taxes.

The reason the rate for a payments tax is so low, is that the total amount of payments we receive in day-to-day life is tiny compared to the total amount of payments in the overall monetary economy.

For every $100,000 you earn and are taxed on today, there are $30 million in payments that are untaxed.

A tax on payments corrects the staggering imbalance between the economy that we live in, and the monetary economy that flies under the radar today. That is why a tax on payments is even more fair than the flat taxes other candidates are proposing.
What is the Source of My Data?

The Bank for International Settlements in Basel, Switzerland, known as the BIS, publishes an annual report known as the Red Book, which reports on the volume of payments for most of the major nations in the world. The Federal Reserve keeps track of payments in the United States and provides the data to the BIS for publication in the Red Book. The Committee on Payments and Market Infrastructures at the BIS oversees the publication of the Red Book.

The website for the Bank for International Settlements is www.bis.org.
To download the Red Book for any specific year, go to http://www.bis.org/search/?q=red+book.
Click here to download the Red Book for 2013. The report on the United States begins on page 421.

The breakdown of payments in the United States for the year 2013, as published in the Red Book, is as follows:

Table 11 reports $1,429 trillion in payments processed through the Clearing House Interbank Payments System (CHIPS), Fedwire, checks, ACH and on-us payments.
Table 8 reports $92 trillion in payment instruments, ACH, cards and checks by non-banks.
Table 21 reports $2,517 trillion in payments made through the National Securities Clearing Corporation, the Fixed Income Clearing Corporation, the Government Securities Division, and the Mortgage-Backed Securities Division.
Table 26 reports $418 trillion in payments made through the Depository Trust Company and the Federal Reserve.

How Feasible is it to Tax Payments?

All payments go through our nation’s Payment Clearing and Settlements System. This is a well established and highly regulated network of disinterested third-party entities, which include the Clearing House Interbank Payments System (CHIPS), Fedwire, the National Securities Clearing Corporation, the Fixed Income Clearing Corporation, the Government Securities Division, the Mortgage-Backed Securities Division, the Federal Reserve, and the Depository Trust Company. A tax on payments would simply involve each of these entities deducting 1/10th of 1% from each payment that they process – gone would be the day of filing income tax forms and the 70,000+ pages of tax law that we labor under today.
Who Would Lose?

In political matters, we are used to propositions in which one party loses when the other gains. In business, it is becoming increasingly common to think of partnerships in which all parties benefit. A tax on payments is designed to be an all ’round win-win proposition.

For the typical citizen, a payments tax would mean a substantial drop in the total taxes that they pay each year. If you earn $50,000 today, for example, you pay over $12,000 in income, social security and medicaid taxes. With a payments tax you would only pay $50. When you spend the money that you earn, you would not pay any further taxes, though. Only the recipient of money would pay the FST tax. If you buy groceries, for example, the grocer would pay a payments tax when he deposits your check.

If one sells one’s home, one would not pay a capital gains tax on the gain from the sale of the home with a payments tax. Instead one would pay a flat 1/10th of 1% fee on the net proceeds realized from the sale of the home. In other words, if one netted a check for $200,000 when selling one’s home, one would pay a flat tax of $200, whether or not the sale resulted in a gain or a loss.

For most citizens, whether rich or poor, a payments tax would mean much lower taxes, even when factoring in extraordinary events like the sale of their home. Even if you are an active day trader, for example, the total amount of stock sales that you made last year, when multiplied by 1/10th of 1%, would generally be far less than the income taxes that you would have otherwise paid.

The reason the math works so well is because the payments that the vast majority of citizens receive represent less than 1% of the total payments made each year. When one is seeking a tax that is completely fair, this is a staggering consideration.

It is the ultra-wealthy that a payment tax would affect the most. The transactions they engage in represent the bulk of payments made each year. Surprising to many, only a small percentage of these transactions occur on the stock exchange. That is why a financial transactions tax, as it is usually conceived, is unfeasible – even it would miss the bulk of payments made each year.

Before worrying about a revolt by the mystery-shrouded highly elite, one must consider whether they would really suffer a net loss with a tax on payments. When one considers the impact of eliminating income taxes on the overall economy, it is evident that the net worth of the ultra-wealthy would dramatically increase, outweighing the 1/10th of 1% hit they would take when selling assets. In other words, even those hit the hardest by a payments tax would realize a net gain because of the positive effect that a payments tax would have on our economy.
Would the Amount of Payments Shrink if They Are Taxed?

Because the elimination of income taxes would put more money in everyone’s pocket, consumer spending would increase and our nation’s Gross Domestic Production (GDP) would rise. Since businesses would no longer pay corporate or FICA taxes, they would have more money to expand and hire new employees. And because our government would be operating in the black, our national debt would no longer skyrocket. Together, these factors would propel our economy to new heights, increasing the volume of payments. But the benefits of a tax on payments go well beyond this.

With a payments tax, companies would no longer use foreign subsidiaries to hide from U.S. corporate income taxes, since foreign tax rates are higher than 1/10th of 1%. Likewise, the problem of “inversions,” or companies moving their headquarters offshore, would be solved. Instead, we would see a return of the dollars that multinational companies currently stash offshore, which would increase the volume of payments in our nation. Eliminating income taxes would also bring a flood of money from foreign corporations and individuals into our country, resulting in increased investment in our economy and even more payments. In short, the U.S. would become an international tax haven and our economy would boom.
Could a Tax on Payments be Gamed?

A tax on payments would be easier to enforce and more difficult to game than income taxes. In large measure, the feasibility of enforcement is tied to the party responsible for compliance, which is why we require employers to withhold taxes rather than relying on employees to make payments on their own.

With a tax on payments, the government would rely on highly regulated institutions to deduct 1/10th of 1% when clearing payments. Notably, the person from whose funds the tax is deducted would not have a say in the process.

The feasibility of enforcement is also tied to the pain of compliance. Whereas federal income taxes cost 20–40% of your personal income, the cost of a tax on payments would be miniscule, so the incentive to avoid the tax would be much less than the incentive to avoid income taxes.

Person-to-person cash transactions would avoid a tax on payments, of course, just as they are a means of avoiding income taxes today. While such transactions are impossible to track, their volume is so small compared to the overall size of the economy that we need not worry about them.

If This is Such a Good Idea, Why Hasn’t It Been Done Before?

I’ve been involved in implementing many innovative ideas over the years, and this question always comes up. In fact, new ideas are never easy to implement, as they always generate immense initial resistance. One can never assume that all good ideas have already been implemented. New ideas are never obvious except when seen in hindsight.

— source scottsmith2016.com

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