I love it! You've just legalized those businesses which give discounts for payments in cash.
However, I think more than high frequency trades will be affected. I could foresee banks holding on to more cash instead of doing lots of interbank nonsense. This, I regard as a positive. It might also most the financial rent-seeking games to other countries. So be it. We are diverting our brightest to work on such financial nonsense when they could be doing something useful.
My main concern is that this appears to be a tax suitable for the federal government to collect. I don't care for having the federal government doling out money to the states and localities. Always comes with strings attached.
Suitable yes, but could it not also be decentralized based on where the individuals and businesses reside? It adds complexity but seemingly much less than today.
Sure. You'd simply assign the funds collected to the local / state government of domicile. To be chartered as a bank in a state or locality you'd agree to do that.
Fabius M is spot on! This would put all revenues into the hands of the denizens of the DC Swamp. Every State, every city, every county would have to bend the knee to those despicable Swamp Creatures to get money needed for roads, water treatment, schools, police, hospitals, etc.
The intention of this tax reform is good, but the implementation would be a disaster -- with everyone eventually totally dependent on the whims of a corrupt unresponsive central government. What we need, consistent with the concept of federalism, is the reverse -- a tax that is collected locally, with localities then handing a negotiated part of their revenues to States for approved State purposes, and the States in turn handing a negotiated part of their revenues to FedGov for purposes which they approve. The only way to control FedGov is to control its access to funds.
How best localities should raise revenues is another (very difficult) question.
There are some workarounds. For example, property taxes should definitely be collected at the state and local level. And if the combination of transaction tax and tariffs nets the feds too much, they could give a rebate to all adult citizens. This ensures that even poor towns have something of a tax base. I'm also partial to a universal inheritance. Upon reaching some age -- say 19 -- natural born citizens get a lump sum which they can apply towards an education, getting a home, starting a business, or whatever. This is in lieu of student loans and all the racial envy stuff. If you blow your universal inheritance, you have no one to blame but yourself.
Land tax is not fair when the government gets to unilaterally decide what your land is worth. Fairness would be taxation on the last sale price. Until there is a contract to purchase with a stated amount, any value assigned to it for taxation purposes amounts to a tax on unrealized gains.
A fascinating point, and one that I was going to make in a week or so.
Remember, if memory serves, Almost-President Harris proposed a tax on unrealized capital gains - a REAL tax on essentially phantom - pure paper, nominal - that took REAL money out of the economy to pay for paper "gains" that did not exist in the real world.
My friends who have Bloomberg terminals were in abject horror at this idea - it would essentially collapse the market for financial instruments, and "collapse" is not a term we use lightly. Pensions, for example, would disappear overnight.
Yet, this is EXACTLY how the current property tax works, and that is how the public school funding scam works. By shifting responsibility for the two elements, a basic game of "bait and switch" takes place. One sovereign assigns the property value, and the OTHER sovereign sets the tax rate. Thus, each points to the other, and the bewildered tax payer pays, one way or another, a "constant yield tax," based on a so-called "constant yield tax rate."
Your ultimate solution is correct - such taxes are realized at the moment of sale, the moment when the fictitious gains become real, and thus, realized.
(There is some manipulation being played here, something like the property of a corporation being taxed on the original valuation, based mostly on the cost of land purchase plus the cost of construction. This is what stops every business from fleeing, I think it is, California, tomorrow at nine am.)
A focus on the transaction tax & tariffs would be my recommendation. A land tax means you don't own the land (and let's not encourage / remind the government...), and a poll tax just isn't terribly interesting.
To justify the time required for this work however, and to avoid getting into trouble with the boss at Autarch LLC, the paper would need to be converted into both the Auran currency and Supermetric Points.
The platform should be taken and considered as a whole. Otherwise it will read like yet another proposed tax and administrative burden. None of this is appealing in isolation. Only as a complete system, which fully funds a modern government and ties the financial and administrative burden directly to the benefits enjoyed, does it make any sense.
I think that, with the taxes on bank accounts, you'd see a lowering of people's savings and more people keeping cash in their house. This could also lead to a rise in crime rates, robbery, etc. Any thoughts or keeping such things in mind?
As far as why such things haven't been implemented... The elites wouldn't want it, and so they propagandize the lower class into Capitalism!-HO! (TM) and free-trade ideas, that would consider this a socialist or communist tax scheme. Any idea that people can't have the liberty to chose to do what they want is 'anti-American'. And thus, it dies the death.
I see no choice but to implement harsher penalties for home invasion, nationwide castle doctrine, and renewed commitment to the second amendment! I was in favor of those things anyway though.
If we could bring Ralph Barsodi and EF schumacher back from the grave to form an economic council with yourself I can just about imagine a modernity that wouldn't suck. Some days I'm sure that nothing can go well without the abolishment of all modern complexities, but a few of your essays offer a rare glimpse of a plausible alternative to luddism. Kudos for such good, thorough work.
I have been under the impression that income tax withholding from paychecks was paid by the employer to a local tax franchise that would collect the tax and hold it in an escrow account from which quarterly payments would be made to the IRS on your behalf. This franchise is a privately owned business. I found out about this quite a few years ago, maybe 2010-ish? But of course now I can’t find anything about it but this has been my understanding. The point is that this middleman is profiting off of our taxes via the earnings on the escrow account. Also, as far as I know it is possible to do a W-9 form 1099 to be a contractor for your employer and do this yourself. You will also be responsible for all other required withholdings and payments like insurance and workers’ comp, etc. whether this is accurate or not, it gave me the idea that what if we did this for ourselves instead of someone else. If we did we could use the escrow account like a hedge fund or something. If it was done at the state or national level it would be huge. BlackRock has been averaging around 12% annual returns but clients only get about 4% on their individual accounts. Even without any kind of income tax chicanery, the residual funds from earnings would compound into billions quickly. It would be the People’s money that WE would create with our own labor and control ourselves independent from gruberment control. It would be a hedge against the corruption of politicians and bureaucrats.
The “People’s Common Wealth Fund” would be administered as a registered nonprofit. If it collected ALL paycheck withholdings it would be huge. We The People would control it.
Love it, especially the part about transactions outside the system being unenforceable. This is a feature I would gladly exploit, much like I opt out of "extended warranties". Others would too, I suspect, which would decrease the burden of small claims courts and frivolous lawsuits.
Can't help but notice we're all paying effective transaction taxes all the time, to the likes of paypal, HFTs, and to cryptocurrency miners. Somehow this has not rendered any of these systems unusable.
It would seem to encourage consolidation and vertical integration in industry. I wonder how that would balance against increased cost to engage in the financial schemes that enable consolidation.
It definitely would encourage vertical integration and that is arguably the worst thing about it. I have tried to figure out how to handle that and haven't really come up with anything.
> Note, please, how elegant this is: The transacting parties are empowered to decide whether or not a particular transaction is important enough to merit lawful protection and if not they are free to use cash or crypt to avoid the tax. Would you wire $4M for a house knowing the mortgage was unenforceable? Probably not. You’d pay the 50 basis points. Would you worry about the MPT when the little girl next door sets up a lemonade stand in your cul-de-sac? Probably not.
One consequence of this is that it encourages subcultures that can enforce their own internal contracts:
You may not want to wire $4M for an unenforceable mortgage, but if both you and the seller are members of the same minority religion/ethnic group/mafia you might feel more confident doing so. Of course, then the question is how good is the subculture's enforcement mechanism.
Right. My gut says that's a good thing from the point of view of freedom of association and so on. There's probably downstream or second order concerns I haven't sorted but my initial response is "all the better".
Off-hand, the biggest danger is that a rival currency emerges that get pushed hard ("big discounts only with VisaBucks!") but you could fairly easily ensure the pre-eminence of the USD:
- All taxes must be paid in USD.
- No business can refuse USD.
- No special discounts or promotions for using anything other than USD.
"What are those “serious issues in the security markets”? Well, critics of financial transaction taxes believe that trading volume in the securities markets would be seriously diminished if they were implemented, with disastrous effects on market efficiency as well as purported revenue generation."
I remember reading about when Thomas Jefferson was out campaigning. He met with a farmer who told him about a nearby town that had been burned down from a fire. He asked Jefferson if he could get the government to send money to the town so they could rebuild,
Jefferson said Sorry, the Constitution does not provide for that.
This may be naive, but - is there any economic justification for high frequency trading? (Other than it makes quite few people rich.)
The alleged justification is that it increases liquidity in the markets by guaranteeing that there is always a buyer and seller. I think this is disingenuous in the extreme, as we've now added various "checkpoints" to reduce liquidity when things turn out the way bankers don't like (e.g. the freezes on retail traders when various short sellers started to go under).
This bank transaction tax is interesting - I especially like how it's designed to be easier to implement and harder to evade by rich people who at present know how to keep as many of their transactions as possible out of the "taxable income" bucket, while posing minimal burden on poor people and small businesses that just want to use cash. (And in fact encouraging people to keep their purchases local by using more cash!)
I am quite skeptical that it would generate anywhere near your optimistic, $9.5 trillion estimate though. I'm aware that you excluded HFT transactions (which would disappear) from your tax base. But it still strikes me as obvious that if you tried to siphon up 26 percent of GDP with your transaction taxes (and a bigger percentage of actual productive output, since as you've ably explained before GDP is fake), then people would massively restructure their financial lives to make fewer transactions and get taxed less.
I have no idea how much less; economics isn't my specialty after all. But I would be happy to see some country, somewhere, implement a smaller version of this tax as a sort of pilot program, and see what happens. Only afterwards will we really have the data to make any kind of informed estimate of how well it would work on the scale you're proposing. But that's the way new innovations always are - there's very little you can say about them before you actually have experience. But you could probably guess I would say something like that, what with my usual pessimistic outlook!
The trouble with a small scale trial implementation is that capital will flee from the markets that are taxed to those that aren't, muddying the resulting data (as happened in the historical examples mentioned in the article). Capital flight is harder over sovereign boundaries than it is between territories or markets. Would be interesting to see the whole platform applied to a small but economically stable country like Singapore, so that the net attractiveness of the system could be estimated.
It is genuinely quite difficult to predict, indeed. I did the best I could by reading what the policy experts have said on the matter. The few test cases saw a 30% dropoff on transactions and I assumed 50%, but it could be 60%, 70%... It's just hard to say.
I suppose in theory one way to do it would be to calculate at the start of the year what the clearinghouses need to pay, and then tell them to set dynamic pricing to accomplish that. In other words, the basis point fee could dynamically go up or down based on the volume of transactions. Fewer transactions = higher basis point fee. Or perhaps it's a Dutch Auction where the basis point goes down over time until people start transacting again. I will stop before I get Byzantine.
There's one problem I see with this: at first blush, a federal transaction tax looks like a capitation, or a direct tax. The federal government is prohibited from levying capitations on citizens in Article 1, Section 9 of the constitution. So at least at the federal level, such a tax would be unconstitutional. No constitutional issue would arise from states and localities issuing such schemes, however.
But additionally, American history shows us that such a tax is unnecessary. For the majority of its history (until after WW2), the federal government has been able to fund all its morally legitimate activities through tariffs and income taxes levied upon federal employees. Since we know that these two tax schemes are sufficient, there is no need to innovate new schemes.
There would be no reason not to include a poll tax. Properly implemented, it could serve an even more stabilizing purpose than funding elections: it can prevent people too stupid to manage their own money from having a voice in the nations finances.
I hear that there has been effectively no government in Somalia for a few decades. Land there is cheap, so why not immigrate to this anarchist paradise?
I love it! You've just legalized those businesses which give discounts for payments in cash.
However, I think more than high frequency trades will be affected. I could foresee banks holding on to more cash instead of doing lots of interbank nonsense. This, I regard as a positive. It might also most the financial rent-seeking games to other countries. So be it. We are diverting our brightest to work on such financial nonsense when they could be doing something useful.
My main concern is that this appears to be a tax suitable for the federal government to collect. I don't care for having the federal government doling out money to the states and localities. Always comes with strings attached.
It is, indeed, a tax suitable for a federal government to collect. But it's a least-bad tax, so as to speak!
Suitable yes, but could it not also be decentralized based on where the individuals and businesses reside? It adds complexity but seemingly much less than today.
Sure. You'd simply assign the funds collected to the local / state government of domicile. To be chartered as a bank in a state or locality you'd agree to do that.
Fabius M is spot on! This would put all revenues into the hands of the denizens of the DC Swamp. Every State, every city, every county would have to bend the knee to those despicable Swamp Creatures to get money needed for roads, water treatment, schools, police, hospitals, etc.
The intention of this tax reform is good, but the implementation would be a disaster -- with everyone eventually totally dependent on the whims of a corrupt unresponsive central government. What we need, consistent with the concept of federalism, is the reverse -- a tax that is collected locally, with localities then handing a negotiated part of their revenues to States for approved State purposes, and the States in turn handing a negotiated part of their revenues to FedGov for purposes which they approve. The only way to control FedGov is to control its access to funds.
How best localities should raise revenues is another (very difficult) question.
There are some workarounds. For example, property taxes should definitely be collected at the state and local level. And if the combination of transaction tax and tariffs nets the feds too much, they could give a rebate to all adult citizens. This ensures that even poor towns have something of a tax base. I'm also partial to a universal inheritance. Upon reaching some age -- say 19 -- natural born citizens get a lump sum which they can apply towards an education, getting a home, starting a business, or whatever. This is in lieu of student loans and all the racial envy stuff. If you blow your universal inheritance, you have no one to blame but yourself.
For those of you who enjoy policy debate, I would like your opinion. If you were me and thinking about writing a white paper on this, would you:
a) Focus on the transaction tax and tariffs as the centerpiece and remove the other two
b) Keep the transaction tax, tariff, and poll tax, but ditch the controversial land tax
c) Keep all four taxes as they are all interesting / valuable
d) Just focus on elf games and comics bro
I'm against the land tax, as it is confiscatory. If you're unable to pay it after a steep rise in local prices, the government takes YOUR land.
"Nice family farm you've got there. It's a shame a real estate developer wants it, so we've rezoned it and tripled your tax rate."
Full power - cards on the table. The land tax is simply a tax on one type of property, clean, fair, and simple.
The cruelest example of a land tax is when the land is sold from underneath you as a result of not making full payment on ALL of your taxes.
Honesty is certainly the best policy.
Land tax is not fair when the government gets to unilaterally decide what your land is worth. Fairness would be taxation on the last sale price. Until there is a contract to purchase with a stated amount, any value assigned to it for taxation purposes amounts to a tax on unrealized gains.
A fascinating point, and one that I was going to make in a week or so.
Remember, if memory serves, Almost-President Harris proposed a tax on unrealized capital gains - a REAL tax on essentially phantom - pure paper, nominal - that took REAL money out of the economy to pay for paper "gains" that did not exist in the real world.
My friends who have Bloomberg terminals were in abject horror at this idea - it would essentially collapse the market for financial instruments, and "collapse" is not a term we use lightly. Pensions, for example, would disappear overnight.
Yet, this is EXACTLY how the current property tax works, and that is how the public school funding scam works. By shifting responsibility for the two elements, a basic game of "bait and switch" takes place. One sovereign assigns the property value, and the OTHER sovereign sets the tax rate. Thus, each points to the other, and the bewildered tax payer pays, one way or another, a "constant yield tax," based on a so-called "constant yield tax rate."
Your ultimate solution is correct - such taxes are realized at the moment of sale, the moment when the fictitious gains become real, and thus, realized.
(There is some manipulation being played here, something like the property of a corporation being taxed on the original valuation, based mostly on the cost of land purchase plus the cost of construction. This is what stops every business from fleeing, I think it is, California, tomorrow at nine am.)
Excellent point!
Thanks for making it for me.
; )
A focus on the transaction tax & tariffs would be my recommendation. A land tax means you don't own the land (and let's not encourage / remind the government...), and a poll tax just isn't terribly interesting.
To justify the time required for this work however, and to avoid getting into trouble with the boss at Autarch LLC, the paper would need to be converted into both the Auran currency and Supermetric Points.
The platform should be taken and considered as a whole. Otherwise it will read like yet another proposed tax and administrative burden. None of this is appealing in isolation. Only as a complete system, which fully funds a modern government and ties the financial and administrative burden directly to the benefits enjoyed, does it make any sense.
That’s a great point. So develop the full “physiocratic platform” as it were.
Pater please write the white paper! 🥰
We would all appreciate it immensely!
Awesome article.
I think that, with the taxes on bank accounts, you'd see a lowering of people's savings and more people keeping cash in their house. This could also lead to a rise in crime rates, robbery, etc. Any thoughts or keeping such things in mind?
As far as why such things haven't been implemented... The elites wouldn't want it, and so they propagandize the lower class into Capitalism!-HO! (TM) and free-trade ideas, that would consider this a socialist or communist tax scheme. Any idea that people can't have the liberty to chose to do what they want is 'anti-American'. And thus, it dies the death.
I see no choice but to implement harsher penalties for home invasion, nationwide castle doctrine, and renewed commitment to the second amendment! I was in favor of those things anyway though.
"Brookings also points out that high-frequency trading (HFT) would be completely destroyed by even a very small tax"
Good.
Couldn’t agree more
If we could bring Ralph Barsodi and EF schumacher back from the grave to form an economic council with yourself I can just about imagine a modernity that wouldn't suck. Some days I'm sure that nothing can go well without the abolishment of all modern complexities, but a few of your essays offer a rare glimpse of a plausible alternative to luddism. Kudos for such good, thorough work.
Thank you, that is very high praise!
I have been under the impression that income tax withholding from paychecks was paid by the employer to a local tax franchise that would collect the tax and hold it in an escrow account from which quarterly payments would be made to the IRS on your behalf. This franchise is a privately owned business. I found out about this quite a few years ago, maybe 2010-ish? But of course now I can’t find anything about it but this has been my understanding. The point is that this middleman is profiting off of our taxes via the earnings on the escrow account. Also, as far as I know it is possible to do a W-9 form 1099 to be a contractor for your employer and do this yourself. You will also be responsible for all other required withholdings and payments like insurance and workers’ comp, etc. whether this is accurate or not, it gave me the idea that what if we did this for ourselves instead of someone else. If we did we could use the escrow account like a hedge fund or something. If it was done at the state or national level it would be huge. BlackRock has been averaging around 12% annual returns but clients only get about 4% on their individual accounts. Even without any kind of income tax chicanery, the residual funds from earnings would compound into billions quickly. It would be the People’s money that WE would create with our own labor and control ourselves independent from gruberment control. It would be a hedge against the corruption of politicians and bureaucrats.
Just a thought.
The “People’s Common Wealth Fund” would be administered as a registered nonprofit. If it collected ALL paycheck withholdings it would be huge. We The People would control it.
Love it, especially the part about transactions outside the system being unenforceable. This is a feature I would gladly exploit, much like I opt out of "extended warranties". Others would too, I suspect, which would decrease the burden of small claims courts and frivolous lawsuits.
Can't help but notice we're all paying effective transaction taxes all the time, to the likes of paypal, HFTs, and to cryptocurrency miners. Somehow this has not rendered any of these systems unusable.
It would seem to encourage consolidation and vertical integration in industry. I wonder how that would balance against increased cost to engage in the financial schemes that enable consolidation.
It definitely would encourage vertical integration and that is arguably the worst thing about it. I have tried to figure out how to handle that and haven't really come up with anything.
> Note, please, how elegant this is: The transacting parties are empowered to decide whether or not a particular transaction is important enough to merit lawful protection and if not they are free to use cash or crypt to avoid the tax. Would you wire $4M for a house knowing the mortgage was unenforceable? Probably not. You’d pay the 50 basis points. Would you worry about the MPT when the little girl next door sets up a lemonade stand in your cul-de-sac? Probably not.
One consequence of this is that it encourages subcultures that can enforce their own internal contracts:
You may not want to wire $4M for an unenforceable mortgage, but if both you and the seller are members of the same minority religion/ethnic group/mafia you might feel more confident doing so. Of course, then the question is how good is the subculture's enforcement mechanism.
Right. My gut says that's a good thing from the point of view of freedom of association and so on. There's probably downstream or second order concerns I haven't sorted but my initial response is "all the better".
Off-hand, the biggest danger is that a rival currency emerges that get pushed hard ("big discounts only with VisaBucks!") but you could fairly easily ensure the pre-eminence of the USD:
- All taxes must be paid in USD.
- No business can refuse USD.
- No special discounts or promotions for using anything other than USD.
> Off-hand, the biggest danger is that a rival currency emerges that get pushed hard
Well, the transaction tax is basically how cryptocurrencies work.
Great point.
"What are those “serious issues in the security markets”? Well, critics of financial transaction taxes believe that trading volume in the securities markets would be seriously diminished if they were implemented, with disastrous effects on market efficiency as well as purported revenue generation."
Worth doing for just this alone, tbh.
I remember reading about when Thomas Jefferson was out campaigning. He met with a farmer who told him about a nearby town that had been burned down from a fire. He asked Jefferson if he could get the government to send money to the town so they could rebuild,
Jefferson said Sorry, the Constitution does not provide for that.
This may be naive, but - is there any economic justification for high frequency trading? (Other than it makes quite few people rich.)
The alleged justification is that it increases liquidity in the markets by guaranteeing that there is always a buyer and seller. I think this is disingenuous in the extreme, as we've now added various "checkpoints" to reduce liquidity when things turn out the way bankers don't like (e.g. the freezes on retail traders when various short sellers started to go under).
Minor editorial nit: you mean borne, not born.
Their are probablee mani other airors, I typed it at like 4an, but thang you!
This bank transaction tax is interesting - I especially like how it's designed to be easier to implement and harder to evade by rich people who at present know how to keep as many of their transactions as possible out of the "taxable income" bucket, while posing minimal burden on poor people and small businesses that just want to use cash. (And in fact encouraging people to keep their purchases local by using more cash!)
I am quite skeptical that it would generate anywhere near your optimistic, $9.5 trillion estimate though. I'm aware that you excluded HFT transactions (which would disappear) from your tax base. But it still strikes me as obvious that if you tried to siphon up 26 percent of GDP with your transaction taxes (and a bigger percentage of actual productive output, since as you've ably explained before GDP is fake), then people would massively restructure their financial lives to make fewer transactions and get taxed less.
I have no idea how much less; economics isn't my specialty after all. But I would be happy to see some country, somewhere, implement a smaller version of this tax as a sort of pilot program, and see what happens. Only afterwards will we really have the data to make any kind of informed estimate of how well it would work on the scale you're proposing. But that's the way new innovations always are - there's very little you can say about them before you actually have experience. But you could probably guess I would say something like that, what with my usual pessimistic outlook!
The trouble with a small scale trial implementation is that capital will flee from the markets that are taxed to those that aren't, muddying the resulting data (as happened in the historical examples mentioned in the article). Capital flight is harder over sovereign boundaries than it is between territories or markets. Would be interesting to see the whole platform applied to a small but economically stable country like Singapore, so that the net attractiveness of the system could be estimated.
That would be a great test case!
Those are some good thoughts - by "small scale" I mean in a small, sovereign country at a rate much lower than the 50 bp our host is proposing.
It is genuinely quite difficult to predict, indeed. I did the best I could by reading what the policy experts have said on the matter. The few test cases saw a 30% dropoff on transactions and I assumed 50%, but it could be 60%, 70%... It's just hard to say.
I suppose in theory one way to do it would be to calculate at the start of the year what the clearinghouses need to pay, and then tell them to set dynamic pricing to accomplish that. In other words, the basis point fee could dynamically go up or down based on the volume of transactions. Fewer transactions = higher basis point fee. Or perhaps it's a Dutch Auction where the basis point goes down over time until people start transacting again. I will stop before I get Byzantine.
There's one problem I see with this: at first blush, a federal transaction tax looks like a capitation, or a direct tax. The federal government is prohibited from levying capitations on citizens in Article 1, Section 9 of the constitution. So at least at the federal level, such a tax would be unconstitutional. No constitutional issue would arise from states and localities issuing such schemes, however.
But additionally, American history shows us that such a tax is unnecessary. For the majority of its history (until after WW2), the federal government has been able to fund all its morally legitimate activities through tariffs and income taxes levied upon federal employees. Since we know that these two tax schemes are sufficient, there is no need to innovate new schemes.
There would be no reason not to include a poll tax. Properly implemented, it could serve an even more stabilizing purpose than funding elections: it can prevent people too stupid to manage their own money from having a voice in the nations finances.
Thank you for sharing an interesting concept. I look forward d to reading the rest of the series!!!
Also, …
I will share it with my family, friends, and elected representatives.
I hear that there has been effectively no government in Somalia for a few decades. Land there is cheap, so why not immigrate to this anarchist paradise?
lol
Do you think that maybe this post was a little bit over his head?
All I heard was “FUCK FUCK FUCK FUVK DUCK FUCK FIVK…”.
Yes. Taxes are hard, complicated, and their effects are extremely difficult to predict. Maybe we should study and debate them!?