3 Jan 2011

Edgar Feige's APT Tax

Hey! I've just discovered that there was someone who has been proposing the idea of replacing effectively all current taxes by a single flat rate transaction tax for at least 10 years!

Dr. Edgar Feige, emeritus professor of Economics  at the University of Wisconsin-Madison proposed what he called the Automated Payment Transaction Tax (APT Tax) over a decade ago. Here's his photo:

You can find out more from the APT Tax webpage and there's a paper entitled "Taxation for the 21st Century: the automated payment transaction (APT) tax" that came out in the journal Economic Policy in October 2000. 

There's also a link to an article about the idea that came out in the New York Times on February 2, 2003 that was written by Daniel Akst and entitled "Dreaming Out Loud: One Tiny Little Tax".

And there's another link to another article in the Wisconsin State Journal from around the same time.

What an excellent idea! Shame that more people didn't take notice - there are just 17 citations to his paper in Google Scholar. It's about time he got the recognition he deserved- and about time his forward thinking ideas got taken seriously.

10 comments:

  1. Simon, If I may introduce myself, my name is Bill Hermann and have worked with Dr. Feige over the last nearly 5 years now to create and maintain the www.apttax.com website. Glad you found it useful.

    As you are aware there have been many transaction taxes throughout history that have taught us their use as an "add-on" tax for a particular, usually worthy, cause meets with much negative criticism and they disappear -- giving the whole concept a bad name. The rate is also very sensitive especially when it comes the financial markets. One percent on financial transactions would be onerous and would distort markets especially currencies. 0.3% to a max of 0.4% per side is more reasonable but there would still be plenty of detractors. Indeed this is one of the few arguments against the tax that is inherent and cannot be fairly compromised. Sometimes I just have to say - day traders cannot stand in the way of such great benefits for business and indivdiuals. This rate effect on the financial markets however can act as a welcome cap on rates so governments have some limitation. One of the central tenents of APT is that it is proposed to replace all national taxes, specifically NOT as an add-on tax -- hopefully that is clear on the website. As a replacement proposal many of the arguments are disarmed due to the many benefits accruing from a much expanded tax base. Dr. Feige made a careful estimate of the APT tax base from certified data available several sources two years ago. It was nearly a quadrillion USD and now has probably reached that again level for the US despite this downturn. Dr.Feige suggested years ago that the theoretical transaction tax base as calculated from the BIS and other sources be cut in half for setting rates to achieve required levels of revenue -- this is very effective in disarming many critics and more than accounts for slight movements into cash transactions and fewer inter-account transfers etc that would naturally result.

    I have been thinking of late that APT may represent a totally different, virtually unknown, third alternative for the austerity vs increasing already heavy taxes distasteful dichcotomy faced by nations like Ireland and Portugal. The economic freedom unleashed by the removal of all other forms of taxation could be a saving grace for these countries and a great way of introducing this wonderful concept to the world.

    Sorry my French looks so much like English. You or anyone reading this can email me at director@apttax.com.

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  2. Hi Bill,

    Thanks for your commentary - the first one so far on my blog! At least I now know that the comment mechanism works.

    I hope that your APT site can get more people interested. Actually, it's nice to know that a real economist thinks that the idea is one worth pushing. I've spoken to the economists I know (not many) and haven't got them to bite yet... they generally say that the Markets wouldn't go for it - not really very surprising.

    Best wishes

    Simon

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  3. Too many are thinking "add-on" tax but when serious investors see absence of cap gains and income tax they should see a net positive in that they are now paying the small percent in fees and so called stamp taxes in many countries. India's Security Trading Tax, as high as 1%, was predicted to bring down their markets and instead they soared on the gov'ts new dependable income stream from the tax. Teh special interests in Brazil finally got rid of their Transaction Tax because -- are you ready -- it was so dependable and automated,they could not cheap and evade like with VAT and income tax.
    not that's a legitimate basis for complaint.

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  4. Bill,

    Thank you for "explaining" why Brazil dropped the idea. I had tried to understand why they didn't keep going. That is truly amazing and a beautiful illustration of how market interests can distort things. The current ridiculously complex tax systems found in every country are an open invitation to employ armies of accountants to avoid paying tax.

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  5. Professor Feige made a presentation about his APT plan to the Bush tax reform panel in 2005.
    http://www.scribd.com/doc/25299549/Feige-APT-Presentation-to-Tax-Reform-Panel-2005

    Of course, he missed the most intriguing part of his plan (in the US-specifc context). Since it would be levied as money flows through the Fed, the Fed governors could simply enact APT as a transaction fee (instead of as a congressionally imposed tax). Since the Fed already rebates its net earnings to Tsy every week, by adjusting its transaction fee schedule, the Fed governors could adjust the nation's fiscal stance-- in a Wynne Godley fashion-- as easily as they adjust monetary policy.

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  6. Although I do not support that such a tax should be an add-on tax permanently, I believe that a transition period from our current tax system to a transaction tax system must be gradual, thus the transaction tax would have to be an add-on tax for a period of time. I would like to hear more discussions about how such a transition would be conducted because such planning has to happen.
    I think the vision we hold of the APT tax will not gain traction unless we can provide real-world solutions for how to transition from one system to the other. One example is the introduction of the APT tax as a pilot whose percentage is so small that its impact (and risk) would be minimal. Gradually increasing the percentage while phasing out the previous system would enable robust risk management of the factors that detractors often cite.

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  7. Simon-
    there is an interesting and objective analysis of the Tobin Tax at www.ids.ac.uk/files/dmfile/WPS... . While I am not in particular focusing on the Tobin Tax, I think the analysis does a good job of looking at the many aspects of a financial transactions-type tax system. It includes seven pages of references, pulling in data and analysis from all corners of the earth.

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  8. Thanks - but unfortunately, it looks like the link doesn't work. Can you check?
    Simon

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  9. The advantage of replacing other taxes with the FFT is that you can negotiate with the financial sector. If you say that we will abolish corporation tax if you accept to pay an FTT, even the financial sector may see sense...

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  10. I am having trouble with the link as well although not on the other site where I posted it...very strange.
    you can also google:

    Economics Department Working Paper Series
    No. 16-2010

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