8/17/2013 The Ed Show – Ed Schultz via Facebook Dear Mr. Schultz, This evening, you did an Ed Show segment with David Cay Johnston on taxing high-volume stock transactions. I think this idea is headed in the right direction, but does not go far enough. I have a more broad-based idea for tax reform that I think is great and believe you will think it is great also. THE IDEA Replace ALL income taxes and most other taxes with a very broad-based 1/8% Financial Transactions Tax (FTT). On March 31, 2008, Secretary of the Treasury Paulson stated (and wrote) that each business day there was an average of $13 Trillion of transactions processed by US financial institutions. That would mean there were $3315 Trillion of transactions per year. If Secretary Paulson was correct, a 1/8% Financial Transaction Tax would yield over $16B of tax revenue each business day and over $4T in tax revenue each year. THE MATH 1. $13T/bus-day x 255 bus-days = $3315T of Financial Transactions per year 2. $13T/bus-day x 0.00125 = $16.25B / bus-day Daily Tax Revenue 3. $16.25B/bus-day x 255 bus-day = $4.143T Tax Revenue per year MORE MATH Financial Transaction x FTT rate = Revenue $1 x .00125 = $0.00125 One-tenth cent $10 x .00125 = $0.0125 One and ¼ cents $100 x .00125 = $0.125 Twelve and ½ cents $1,000 x .00125 = $1.25 One dollar and 25 cents $10,000 x .00125 = $12.50 Twelve dollars and 50 cents $100,000 x .00125 = $125. One hundred twenty-five dollars $1,000,000 x .00125 = $1,250. One thousand two hundred fifty dollars $1 Billion $1,000,000,000 x .00125 = $1,250,000. One million two hundred fifty thousand dollars $1 Trillion $1,000,000,000,000 x .00125 = $1,250,000,000. One billion two hundred fifty million dollars WHAT IS A FINANCIAL TRANSACTION? While former Treasury Secretary Paulson did not state what is included in the $13T of daily transactions, I believe that all transactions processed by banks and brokerages would qualify. I also believe that any financial transactions of any institution, organization, business, or person would be counted. I believe that all institutions would include: businesses, banks, brokerages, for-profits, non-profits, religious organizations, charities, local-state-federal governments, and Federal Reserve. All persons would include poor, middle class, wealthy, young, old, male and female. Every time a financial transaction occurs in or out of an account, the tax would be levied. Cash transactions would not be taxed – again only when money is moved via a financial institution would taxation apply. (Banks could be paid a small stipend for collecting the tax.) Universality (a broad base) of a tax is important for compliance. If everyone is paying the tax, compliance monitoring is easy and cheating would be very difficult. But there still may be a need for a non-compliance penalty. I would suggest a penalty of 150% of the transaction if the 1/8% tax was not paid. A Financial Transactions Tax replacing income tax would give the economy an immediate boost because of: • An individual income tax rate of 0% • A corporate tax rate of 0% • A capital gains tax rate of 0% • A dividend tax rate of 0% • A “death tax” rate of 0% • A 1/8% tax on foreign earnings brought back to the United States Other benefits include: • No cumbersome personal or business tax code • No individual or corporate tax forms to file • A revenue source that would be extremely easy to administer and difficult to cheat • A fair flat tax for all, poor – rich – individuals – corporations • A check on “flash” trading This is the only major effect on business that I can see. WHAT ABOUT DEDUCTIONS? If the government wishes to continue to support various popular deductions such as the home mortgage deduction or charitable deduction, the government could use rebate checks. Rebates could be processed by former IRS tax processors upon receipt of a rebate application (since IRS doesn’t have to process income tax anymore). A benefit of rebates is that taxpayers would know the exact cost of government expenditures for home mortgages, charitable giving, research, subsidies, etc. WHAT ABOUT BUDGET CUTS? Budget cuts could still be made. COULD THE TAX BE PHASED IN? Yes, the FTT could be phased in. For example, implement a 1/10% FTT dedicated solely to reducing the accumulated debt. A 1/10% FTT would yield about $13B of debt-reducing tax revenue each business day and $3.3T in debt-reducing tax revenue each year, thus eliminating the debt in 5 years! In year six, the income tax could be replaced by a 1/8% Financial Transactions Tax. SUMMARY A Financial Transactions Tax would be simple and universal. Workers and families would see an immediate income boost because withholding would be gone. A person buying a car is not going to avoid buying a car because of a $25 FTT. A family wishing to buy a $500,000 house won’t even blink at a $625 FTT. Businesses would be freed of onerous paperwork and 35% tax on profits. Most business transactions would occur because they make sense – a $1M deal is not going to stop because of a $1250 FTT. The low rates would make it easy for companies to bring their overseas money back to the USA, a big economic boost. Flash traders might balk, but is the US economy really helped by flash trading? No. Move from taxing income to taxing money movement. Just a few other thoughts – in the last few days I have watched C-SPAN coverage of congressional hearings about bogus income tax filing fraud; a tax on transactions through a financial institution eliminates all income tax fraud. DC Mayor Gray ran a “shadow” campaign in addition to his real campaign. The money in the shadow campaign was invisible to taxation, but if it ran through a bank or other financial institution, it would have been taxed and made visible. I have sent this idea to President Obama, several politicians, the business channels, C-SPAN, The Daily Show, and to TaxReform.gov – without getting any response. I still think it is a great idea and think you will too. Thanks for your consideration. Michael F Johnson
Posted on: Sat, 17 Aug 2013 23:02:24 +0000