I agree with Kevin that there are opportunities for collusion to reduce 
tax. I also see an incentive problem. An income tax reduces the marginal 
value of increased income, but there is still incentive to increase 
your income (you get more money). A transaction tax disincentivizes 
transactions. The problem is that our economy crucially depends on 
people spending money on things.

Maybe the point is that such a small tax doesn't make it so unattractive 
to spend, but when you start piggybacking Social Security and state 
taxes, as the article suggests, it starts to add up. And this ignores 
the problem of adminstering the state taxes; if I bank in another state 
(with a lower tax rate, natch) and so does the other party of the 
transaction, we'll find that some states are going to be starved of income.

Anyway, it's an interesting idea, but it will require quite a lot of 
thought to eliminate the negative consequences.

Matt

PS I agree with Kevin on the filtering.

Kevin Lochner wrote:
> This actually sounds reasonable to me, but my first thought is "how 
> would I break it?"   If I was going to buy your carribbean island for 
> $40M, and you were going to buy my gulfstream jet for $39.9M, we could 
> sell them to each other for $200k and $100k respectively and avoid all 
> the transaction taxes.  Given that all the "progressive" features of 
> this tax are generated from banking and financial institutions, you have 
> to figure they will collude to avoid them.
> 
> Also, presumably a large part of the theoretical financial tax revenue 
> comes from trading, as it constitutes a large share of financial 
> transactions.  If hedge fund X trades into and out of a stock several 
> times in a month, my understanding is that they get taxed slightly on 
> each transaction, whereas if they move their money out of the country, 
> they get taxed once when it leaves & once when it returns.  So why not 
> move all trading accounts offshore & avoid the bulk of trading-related 
> taxes?
> 
> i'm not sold yet, but the idea is interesting and it's certainly more 
> progressive than a flat tax.	Maybe we can design a "tax-evading agent 
> competition" & see what happens.
> 
> - kevin
> 
> I have no problem filtering or just deleting threads that I don't like, 
> this isn't exactly a high-volume mailing list.
> 
> On Sat, 5 May 2007, Daniel Reeves wrote:
> 
>> Is this a good idea?  I can't figure out how this would trickle down 
>> in practice and how big a problem reduced liquidity of financial 
>> markets is.
>>
>> [Meta topic: I suggested that people shouldn't be shy about chiming in 
>> on a thread once it's started because reasonable mail readers make it 
>> easy to ignore threads.  Dave Morris replied that that prompted him to 
>> filter improvetheworld out of his inbox.  So straw poll: Does your 
>> mail reader make it easy to ignore threads?	(reply to just me with 1 
>> for "yes", 0 for "no", and no reply for "I hate these straw polls")]
>>
>> The New York Times
>> February 2, 2003
>>
>> Dreaming Out Loud:
>> One Tiny Little Tax
>>
>> By DANIEL AKST
>>
>> THINK of your economic life as a highway. It's decently paved. But 
>> thanks to the tax system, there are tollbooths all over, with rates so 
>> complicated you need an expert in the car with you to figure them out. 
>> Sometimes you drive well out of your way just to get around them.
>>
>> Now imagine that a sort of tax-system E-ZPass comes along, enabling 
>> you to whiz through the booths without an accountant in the back seat. 
>> Suddenly, it's smooth sailing.
>> President Bush has proposed a controversial tax plan and has made 
>> noises about wanting to overhaul our generally abominable income tax 
>> system. In recent years, people have suggested simplifying the tax 
>> code, adopting a flat tax or taxing consumption instead of earnings. 
>> Mirror, mirror on the wall, what's the fairest plan of all?
>>
>> My vote goes to the Automated Payment Transaction tax, an efficient 
>> system dreamed up by Edgar L. Feige, a retired economist from the 
>> University of Wisconsin. His plan is so appealing that after he 
>> presented it at a conference in Buenos Aires in 1989, six Latin 
>> American countries, including Argentina and Brazil, tried it. But it 
>> was never intended for developing countries, and it's supposed to 
>> replace other income taxes, which create perverse incentives and 
>> impose heavy costs. In Latin America, his plan was simply piled on top 
>> of existing taxes as a new revenue source.
>>
>> Doing such a thing ignores the plan's main appeal. Basically, Dr. 
>> Feige proposes to eliminate the entire federal tax system - including 
>> corporate, excise and estate taxes - in favor of a tiny tax on all 
>> financial transactions that would be automatically deducted from 
>> special taxpayer accounts resembling those of E-ZPass holders. 
>> (Drivers with E-ZPass have a little windshield gizmo that is 
>> automatically read when passing through a toll plaza; the toll is then 
>> deducted from their E-ZPass accounts, which are replenished 
>> periodically by credit card or check.)
>>
>> In a stroke, the Feige plan would sweep away the Rube Goldberg system 
>> we've come to loathe: no deductions, no income tax returns, maybe even 
>> no Internal Revenue Service. The whole thing would raise the same 
>> amount of money as today's system does while saving hundreds of 
>> billions of dollars in compliance costs, tax evasion and 
>> inefficiencies, according to Dr. Feige.
>>
>> I know about all the lobbyists with their own special interests, but 
>> let's just dream for an instant. No longer would economic players 
>> contort themselves to avoid taxes - mostly it wouldn't be worth it. 
>> And no longer could the government direct the economy through the tax 
>> code, which encourages people to do things they might not otherwise 
>> do. Most of these things - like buying overweight sports utility 
>> vehicles to get a light-truck deduction - are a bad idea anyway.
>>
>> Instead, Dr. Feige would levy a little toll - just 0.6 percent - on 
>> the economic highway of life. This amount - the professor's 
>> conservative calculations mean we might get away with even less - 
>> would be split by payer and payee in any transaction, meaning on 
>> average you would pay 0.3 percent whenever you spent or received 
>> money. It would all be taken care of by your bank's computers when 
>> they paid your check or you withdrew cash. You'd hardly notice it - 
>> especially since even someone spending $100,000 a year would pay just 
>> $300 in tax.
>>
>> But I said the plan is "revenue neutral." So where would the bulk of 
>> the tax revenue come from? Well, most of the value of transactions in 
>> a modern economy consists of financial dealings: sales of stocks and 
>> bonds, currency trading and the like. And these would be taxed. 
>> Financial services firms would scream, but even they would get some 
>> benefit. There would be no corporate income tax, after all, and while 
>> liquidity might be slightly reduced, some economists figure a small 
>> tax on financial transactions would cut speculation and dampen 
>> volatility.
>>
>> Dr. Feige's plan would be quite progressive because most of the 
>> financial dealings that would supply the bulk of revenue are conducted 
>> on behalf of corporations and rich people. The plan wouldn't eliminate 
>> Social Security taxes (probably the least progressive kind), but 
>> there's no reason a higher rate couldn't be adopted to cover this. 
>> State taxes could easily be piggybacked.
>>
>> In short, the Automated Payment Transaction tax offers fairness, 
>> simplicity, and efficiency. It may not be a free lunch. But it sure 
>> smells better than the one we eat now.
>>
>>
>> -- 
>> http://ai.eecs.umich.edu/people/dreeves  - -  search://"Daniel Reeves"
>>
>> "To err is human. To moo bovine."
>>