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Oops! One other issue. Perhaps multiple postings will ease the pain of reading my rants.

You buy into the barter argument as an avoidance methodology very easily. I laid out a simple example that argues the contrary.

Currently, although this capability is available to many businesses, there is no seeming benefit in that the dollar value of barter arrangements would come through as additional profit which is currently taxable, so net there is no gain. In a transaction tax based environment any avoidance of transaction volume will result in an overall tax reduction. I understand that taxes will be paid on the ultimate consummation of any product, but avoiding layered transaction taxes will provide tax savings and you can bet that the ingenuity of US business will seek to find tax advantage wherever it may exist.

boydsd:

Two things to keep in mind: 1) I am not sensitive; I will, of course, react in-kind should I sense reactions or statements which I interpret to be limiting or specious. 2) It is not my intent to inflict harm in my, shall we say, more sarcastic responses. My ruminations are intended to elucidate and entertain. I enjoy, on occasion, adding little jabs here and there when my opponent provides me an opening. None of what you say is taken personally and none of what I retort is meant personally.

The simplicity of APT as proposed obviously has many shortcomings in your view. Disconnecting tax collection from what the Govt spends money on is what appeals to me. Divide and conquer. Simplify collection, then work on the spend side. We could still accomodate your desire to balance the scales with adjustments to the spend side.

Aha! You have espoused that which I most fear from the purveyors of any "simplified" tax scheme; that of more "starve the beast" mentality. There are those, and I include the supporters of this site among them, who are earnestly positing solutions to what they view as a cumbersome, illogical, costly system. There are many others who would view APT or the Fair Tax or a flat tax as vehicles to further restrict government revenues and create pressure to limit government spending, backing into a smaller, less effective federal government. Your remarks above allude to that desire.

No doubt the spend side could be utilized to attempt to effect balance but that is an extremely inefficient way of seeking resolution. It would often lead to "handouts" or the passage of multiple, targeted legislation acts. These would be activities which, on the one hand, could lead to balancing attempts via initiative destroying actions as opposed to motivational actions, and on the other hand, could cause the investment of time, energy and cost only to find out later that the intended target was missed.

Much is made here of the Information Age aspect of APT - sort of a Star Trek view. In fact the current system is analogous to a huge software program. Once the original code is written to accomplish the original goals; tweaks, corrections and changes are desired to finetune or alter the program. Through the use of switches, internal procs, additional code, the system is altered to fit new goals or to refine adherence to original goals. As with software code, if the changes are constantly added-on with no review directed at maintaining simplicity and efficiency of operation, the program tends to become unwieldy and slow. There is nothing wrong with the system but rather with those directing the alterations to the system.

Simplify collection? One can hardly argue with the worth of that goal but the bulk of your statement suggests that this is not your primary objective. It is apparent that what you want is to impose a system that will further the income imbalance and restrict the government's ability to easily affect that imbalance and/or limit government's ability to spend.

You obviously have a fair amount of accounting experience, how will business "barter" off the books? I would think most business transactions today take place electronically in some way, I don't see how Ford will trade F150's to their Radio supplier off the books. In most instances I don't see how two parties to a transaction will have much that interests the other besides money.

A fair amount could certainly be viewed as an understatement. Rubicon frequently mentions that APT is hard to get one's mind around; your question would seem to support that contention. Business cannot keep "barter" off the books. GAAP will not allow it and of course the current IRS regs will not allow it, simply because any "barter" activity feeds profits which are GAAP reportable and taxable. Once you move to a transaction based taxation scheme, profits for tax purposes are no longer an issue. GAAP will still require booking any "barter" activity. Under APT, taxation would be accomplished through banking transactions. Any transfer of goods or services which bypasses the banking system will be tax free.

There are currently large "barter" operations taking place. Most of the activity is centered around slow moving and obsolete inventory being traded for services or other products needed by one of the "barter" participants. APT will intensify efforts to increase "barter" activity because the savings can be huge. Below in Example 1 is a scenario I posted before, Example 2 is a new addition.

Example 1 - Consider, Company A makes a final product which includes parts from Company B. Company B is a foreign company which is not involved in APT. Now Company B has a market for Company A's final product on which they can make a very good profit. They agree to a contract where Company A will receive Company B's parts in exchange for a commensurate volume of Company A's final goods with no cash changing hands. This is not an extreme scenario. Company A and Company B incur no additional costs in this agreement in excess of those that would be incurred in a normal transaction. If the transactions amount to millions then the APT avoidance savings amount to tens or hundreds of thousands. Even small APT savings, since there are no additional costs or logistical elements, would encourage Company A to take this action. New ideas, new processes will be dreamed up to save money; that which businesses cherish above all in big or small amounts.

Example 2 - Company A buys chemicals from Company B, could both be US companies or global. Company A uses some of those chemicals to produce an intermediate compound for their final products but the compound can be used in many other products not in competition with A's final products. Due to equipment and formula limitations, A must make a two year supply of the compounds in each manufacturing pass. B has a market for this compound and for a variety of reasons does not seek to manufacture the compound itself. A contracts with B to secure chemicals and provides payment to B with a commensurate value of the compound. Again, no additional costs occur beyond those that would apply in a normal business transaction but the avoidance of banking transactions avoids taxes.

Company A could also be making shampoos and soaps which could be "bartered" to major hotel chains, directly or through an intermediary, in exchange for worldwide hotel accomodations for their traveling employees.

Even in your example the maker of Ford F150's might provide the Radio supplier with a new vehicle in return for a commensurate value in radios. Or let's say the Radio supplier is a small individual business and the Ford maker agrees to get the radios, at a much reduced price, in return for paying the Radio supplier's kids tuition to Duke. The APT tax would not be entirely avoided by the Ford maker but the Radio supplier avoids all taxes on the transactions and would adjust the price accordingly thereby reducing the overall APT tax collection.

Clearly no company is going to "barter" final goods that could end up competing in markets they serve but in our expanded global interactions many companies could "barter" final goods into markets that they do not currently serve. Most manufacturing firms have the capacity to produce a variety of intermediate products that could be produced for "barter" without affecting their final goods markets.

Dr. Feige, and it seems you, downplay the likelihood of "barter" being much of an issue because it is cumbersome and logistically inviable. This is somewhat true at the individual level but in the corporate/business world it could be effected with little additional cost or logistical impairment. I have asserted that Dr. Feige's view is amateurish, perhaps naive is the better adjective. When unleashed, the inventiveness and innovation of the human mind knows few bounds.

Now, of course, should we make "barter" illegal this would severely limit this kind of activity, but: Further, Dr. Feige, frequently expounds that there will be no tax returns; no information returns; the government will have no access to the details of activities, only the net results of the APT application to those activities. This means that even if laws were passed to outlaw barter transactions there would be no readily verifiable way for the government to even know. We could of course start to rebuild a pseudo-IRS to monitor for these actions. Is the dream fading?

Can you envision the government going into court arguing that a company violated the law by utilizing "barter" activities and the company arguing that to desist they would have to lay off many employees and shut down local plants?

All this could be accomplished while continuing to record "barter" on the "books".

So often I must repeat myself: The use of "money" transactions as a tax base is due to the fact that "money" is a simple efficient medium of value exchanges. "Money" also is the means to or the result of "profits". As long as taxes were based on profits there was no impetus to seek other means of exchange. Once you change the model, you change the focus and innovation kicks in.

To some extent the scenarios laid out here are situations with which I have had first hand knowledge; in other words they already are happening.

Lastly, your contention of all the benefits that APT would provide, begs the question of what stops governments, at all levels, from enacting VAT taxes or Net Worth taxes or any other tax schema which adds to the revenue base. We then end up with an even more complex, costly result.

One would hope that this succinct explanation suffices.

boydsd:

I would work with the existing tax structure. Certainly I would seek to refine and reform it. The following is a post I wrote a while back on another blog in answer to the same question. I might consider updating it but you'll get the idea.

I would propose - understand we financial types are much better naysayers than we are creators - keeping the existing tax basis but raising the threshold for any income tax liability to $25,000. At the same time raising and indexing the Earned Income Tax credit to always mirror the changes in the poverty level. I would graduate the tax rates from a low of 10% on taxable income of $25,000 through $60,000; then 15% for $60,000 to $125,000; 25% for $125,000 to $200,000; 40% for $200,000 to $400,000; 50% for $400,000 to $750,000; 60% for $750,000 to $1,000,000; 70% for all over $1,000,000 with a surtax on all over $5000,000 of 15% or 20%. I would eliminate the mortgage interest deduction on all but a primary residence. I would eliminate the 7.5% deductibility limitation of medical/medicine expenses. Eliminate any inclusion of Social Security benefits in taxable income, whether retirement benefits or disability benefits. I would do away with the various filing statuses, such as, Single, Married Filing Separately, Married Filing Jointly, etc. Handle all these variations through a revised system of tax exemptions. Capital gains would be indexed to income such that at a certain level of income they would be treated as ordinary income.

On the corporate side I would raise the base rate to 50% but then give a significant tax reduction for corporations who maintain a reasonable ratio of executive pay/fringes to all non-exec pay/fringes. I would like to credit job creation as well but that is so easily gamed it's probably not a good idea.

I didn't play out any of the numbers to determine whether I was being to hard on those rich folks. My main thinking here was on income from salaries and wages with a bent toward discouraging unreasonable salaries. Would guess that a more serious look would cause some adjustments and it may be difficult to go from where we are to this new schedule in one fell swoop. Another key consideration is that of trying to look at earnings in terms of discretionary income; that income which relates to market place competition for goods and services. A quick comparison reveals that a person making $1,000,000 would pay an additional $150,000 in federal taxes over the 2008 tax tables for Married Filing Jointly. Hmmm...ambition should be made of sterner stuff.

I would also exempt, say, the first $15,000 from Social Security tax and then eliminate or raise the wage cap significantly. For corporations I would do away with the 100% write off provisions in the year of acquisition but I would leave in place accelerated depreciation capability.

Interesting that you tend toward the Libertarian philosophy. My sense has always been that those, in America, who espouse Libertarianism are merely those who can't decide what they believe. Granted there are different aspects to Libertarianism but we Americans tend to shy away from any strong adherence to the rigid confines of any isms.

I don't tend to disagree with your position on the Fed's involvement in education but I strongly disagree with your assessment that the States are not incompetent in that arena. The education system in this country hasn't been working for years with the States in charge. Unfortunately the problems are more cultural and familial than governmental or educational.

I'm not sure how much more diversity you want among the States. If anything, one could make a strong argument that the States should become more generic. At our founding the States were much less a unit of a United States than that of individual nation States. The only real need, at that time, for a central government was to unite a military, if necessary, and to settle disputes between the States. This was a time when traveling from the eastern edge of a State to the Western edge could take days, even weeks or months, depending on your mode of travel. Today you can have breakfast in New York and lunch in California. We are much more one country today.

For the most part the collection of taxes works fairly well. Avoidance and fraud are big problems, but little by little those can be handled. Stiffer penalties and punishment would be a good start.

Doc:

In my ever repetitive style, those with high aspirations seek glory and fame. The money is just whipped cream. Are you suggesting that those with the talent, the connections, the desires for celebrity would slink back to factory jobs if their taxes were too high? That taxes would repress one's desire to work for himself? That the inventor would shelve his revolutionary idea because the financial payoff is not sufficient? That medical scientists would cease efforts to find cures for diseases because they do not recieve a perceived fair share? If you are correct it is a damning commentary of mankind.

It is interesting that when actions of foreign countries fit our arguments they are to be exalted. When seen as contrary, they are to be the subject of ridicule and condemnation.

I have much faith in the ability of our government to make use of any extra funds coming their way. It does raise an interesting question: Why does Dr. Feige suggest merely revenue neutrality when our government consistently operates in deficit? Why not go for the whole megillah?

It is readily apparent that I am a man of many hats. A jack of all trades, a master of none; some might say a jackoff.

rubicon:

What investment would be choked off? You mean we might not see purchases of a 1,000,000 shares of Google stock? We might not see speculative purchases of oil futures? We might see less short stock sales of GM? We might see less merger and acquisition activity resulting in more job losses?

Investment in new companies that provide decent paying jobs is "good" investment. Investments in stock and commodities does nothing to further the plight of anyone other than the buyer/seller and most especially the broker. How many startup companies can you list that have been started by wealthy folks since the Bush tax cuts? You love the rags to richs stories, as we all do, but look carefully, it is rags to richs not richs to richs stories that excite us. As the whole world has opened up as an economic investment universe, more and more investment has been directed to emerging economies. This does little for the American people other than the potential for cheaper goods to satisfy our insatiable desire for more consumption.

Though there can be some validity to taxcuts increasing revenues, it greatly depends on the nature of the tax cuts and is often dependent on asset turnover rates. There exists no empirical evidence that tax increases depress either tax revenues or GDP growth. Your vaunted, "over my dead body", Reagan quote, fails to recognize that throughout the balance of his terms he raised taxes 3 or 4 more times (was he still counting on those spending decreases, even as he expanded military spending to astronomical levels?). I believe that his 1982 tax increases still rank as the largest tax increases in history.

I can only guess that repetition, an educational methodology, will possibly finally work to allow you to understand:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

This is the moral authority which the government can and must invoke to maintain our position as the greatest nation in the world - for a variety of reasons, a failing dream. The moral authority is there; it is your right to disagree with the methods but you cannot deny the moral authority. Any nation experiencing a growing divide between those of wealth, acquiring more and more of the country's assets, and those far removed from wealth, not only losing asset share, but suffering declining wage growth, is headed for either disaster or a complete remake of their method of government. Democracy will be remanded to a nostalgic tale, much like those of the Old West.

Your absolutist pronouncements; A free people are taxed lightly and for justifiable purposes only. Beyond that you have tyranny, defy history. From the advent of the income tax in 1913 the top tax rates have tended to escalate reaching a high of 92% in 1952/53 and were at 91% in 1951 and 1954 through 1963. Where in those years is the tyranny you speak of? They were still at 70% in 1981 when Reagan blessed us with his "voodoo" economic theory. In fact, after rising to 73% in 1918, admittedly due to WWI, it came back down to 25% in 1925 and 24% in 1929, leading to? I know there is no direct cause/effect there but it was one of those many variables that contributed to the Great Depression. The point being that the greatest economic growth period the world has ever known was accomplished during a time when max tax rates were very high and investment flourished. The much greater risk of tyranny is to allow the continuence of this unbridled growth in the wealth of a few priviledged individuals.

The argument you pose, and you are far from alone, is totally contrary to history. If fails to understand human nature, the drivers and motivation, in respect to economic gain.

References to foreign country actions and experiences is not invalid. The problem, as I stated, is that those who do so only applaud those actions of foreign countries that fit their arguments. They will turn around and denounce universal healthcare, as practiced by the rest of the industrialized world; they fail to acknowledge the entire taxing methodology employed, by even those countries they like to include in comparisons. They look askance at the vastly superior social safety nets offered by other nations, especially Europe. Hell, Germany implemented plans similar to Social Security in the late nineteenth century. America has always been impatient. We always want growth and rising prosperity yesterday. We propound our superior economic growth rates as proof of our superior way. We seem to have lost sight of the moral from, The Tortoise and The Hare.

Referencing the experiences of foreign countries only furthers a good-faith understanding if presented from a full disclosure posture. Given cultural differences, political differences, societal goal differences, it is entirely disingenuous, if not specious, to highlight isolated facts to support generalized argument.

Continue your quest, brightly.

rubicon:

You continue to desire to beg the question. I stated that you may not agree with the methods but your initial question was where does the moral authority come from. It comes from the preamble. Many greater minds than yours and mine have wrestled with the enumerated powers versus implied powers. That is an argument that will continue through the ages. That argument has nothing to do with moral authority ends but rather with means.

It's true on a short term basis that revenue increases with a tax increase. But investment is usually a long term proposition, and is made based on risk and return on investment. Long term, lower marginal tax rates invariably result in economic growth. The Great Depression was a global meltdown exacerbated by protective tariffs.

Again you assert something for which you have no empirical evidence. In fact if you review all periods following tax increases you will find increased periods of economic growth. In recent history the time intervals between major tax changes gives us little evidence to test your theory but the period from the early 1930s through the 1970s, on its face, would deny your assertions. The problem is that in the longer term many other variables intervene rendering a true cause/effect relationship difficult to ascertain.

I don't know your professional background. I have explained mine. Given mine I'm not sure you should be one to be lecturing me on the rationale employed in corporate investment decision making. Risks and rates of return are surely a part of the decision making process. Rates of return are predicated, in fact, calculated on profits (not transactions).

When evaluating between competing alternatives for limited investment capital, often, the shortest payback period, that period with the greatest rates of return, all other things being equal, will be the selected action. The reason for this is that longer payback periods mean greater risks since the future is uncertain and there is less guarantee that assumptions will stand the test of time. Very little investment is considered beyond a 5 or, max, a 10 year period. Since future tax rates are part of that uncertainty they weigh very little beyond the immediate future.

You can't seem to grasp that tax rates have little to do with investment decisions. Only when there is a clear tax implication between 2 or more alternatives do taxes enter in as a serious decision criteria. Your grabbing straws again.

Your succinct explanation of the reasons for the Great Depression are mind boggling. In the first place the global meltdown was more related to the effect of the Great Depression than the cause. Secondly, great economic minds have pondered and failed to ascertain one cause of the Great Depression. It appears to be a confluence of criteria all coming together, exacerbated mainly by inaction on the part of the Federal Reserve. I have never encountered any official explanation regarding protective tariffs as a cause for the Great Depression on our shores. We were at that time isolationists and did not depend on imports. No doubt our tariffs effected the rest of the world, but tariffs notwithstanding, we were not in a position to be importing much.

The healthcare injection was merely to point it out as one of those foreign activities disdained by many of the same ilk who would applaud foreign tax schemes, provided they were less than ours.

There is this recurring dichotomy in your arguments. You and Dr. Hermann have confessed that the wealthy and businesses will bear a greater share of the tax burden under APT. Given that these make up the "productive economy" you refer to, you seem to be arguing out of both sides of your mouth. At best you have a circular argument going on. If you increase the taxes on business you are depressing economic expansion. You will, of course, lean on the huge expansion we will enjoy from new investment due to a "tiny' tax rate. First of all, that could be a pipe dream, at best it is an assumption. Secondly, as I have stated, the tax rate means little to business unless it results in lower aggregate taxes.

It seems my short sabbatical created a backward drift to your debating abilities.

rubicon:

Moral authority, by nature, is not dynamic, it is static; it is absolute. Once established it is there, it exists, nothing other than a significant change can alter it. Since the preamble establishes the purposes of the government, it, therefore establishes the moral authority to take actions. The actions taken are arguable. Our founding fathers, in their far reaching view, attempted to delineate those actions the federal government is allowed to take. I'm sure that, on purpose, many of these actions were somewhat generic and obscure. It clearly was not their intention to limit government actions to the sphere of knowledge available to them at the time.

Under Section 8:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

They, again, reference the "general Welfare" statement. To what does that statement refer if not to moral authority. Rather than list all the conceivable taxing methodologies they summarized them in terms of direct and indirect taxes. This summarization, coupled with the proportionality wording, lead to all the interpretive confusion which the 16th Amendment was designed to resolve. As it now stands the 16th Amendment is part of the Constitution and thereby allows for the moral authority to extend to the specific.

The issue of what level of taxation is necessary and proper is simply a personal opinion judgment. It has no meaning in a moral sense. If it is considered moral to tax at all, then the level of taxation is not a moral issue but rather a means, a necessity, issue. Who are you to say, anymore than me, what level of taxation is necessary and proper? We both can have our opinions but it is pompous and arrogant for one of us to consider our perspective as more moral than the other's.

The government that governs best is that which governs (and taxes) the least.

You seem enamored of this phrase, you repeat it often. I do believe that your (and taxes) is a personal injection; certainly it is of later vintage than the original. Whether it was Paine or Jefferson or Napolean ( all brilliant men) who originally penned the thought is of little significance, as is the statement itself, because best and least are personal value judgments and they are entirely relative. What is least? How is it defined? Are there bounds which if exceeded violate least? Thoreau would have it that any government action at all violates least. The phrase, though grandiose and thought provoking, is really more platitudinal. It is not a theorem, provable in the empirical sense, but rather an abstract idea posited to motivate thought. It has no practical value.

The preamble does not advocate tyranny.

Another of your pet phrases. What tyranny? Where does it exist? When did it exist? Are you thinking about the "Whiskey Rebellion"? The latter being a rebellion that substantiated the federal government's intolerance for violent opposition to laws and solidified the idea that laws, in the US, will be made and changed through elective action not through citizen's vigilante action. Besides, you can take my money but don't mess with my whiskey!

The authors of the Constitution were extremely wary of granting power to a federal government, and for good reason.

Minimally arguable; there were some who held to a stronger central government theory but generally the founding fathers accepted the premise of a weaker central government. One should understand however, the nature of the times. At our founding we were more a consortium of nation states, than a collection of united states. Each state had its own government and controlled its own space and citizenry. There was little commonality of interests amongst them. There were states with large economic centers and others where fur trading esablishments represented their principal economic function. They all had a collective need for a combined militia to fend off Indians and potentially intruding foreign governments. They needed an arbiter for disputes among them. They could benefit from a common currency. They needed a central authority for foreign relations. Other than all these they neither desired or needed an interfering entity complicating their existence.

With all the technological advances in travel and communications; with massive geographic mobility occuring daily; with huge disparities in wealth and income in various states; we have become more and more one country as opposed to a collection of individual states divided by months of travel from one end to the other. To maintain economic and social parity among all the states, a strong central government is far more necessary today than at our founding.

As far seeing as our founding fathers seemed to be, they could not have envisioned a country with individual corporations (citizens by law) whose economic power could achieve near federal government size. They likely didn't or couldn't envision a society where unabridged individual wealth would lead to the top 1% of households controlling, owning, 34% of the nation's privately held net worth. Doubt they could have envisioned the top 20% of households owning 81.6% of the nations net worth. I believe they would have viewed this as an economic system out of control (clearly my value judgment).


Granted there are always other factors, but all else being equal, lower marginal tax rates spur economic growth.

Though not untrue it appears to imply that the contrary is also true. That is a fallacy. I have suggested to you to find a period of rising taxes after which the economy did not grow. You have not and you cannot. Economic growth will occur in spite of tax increases or decreases. The likelihood of investment profitablity drives economic growth. In assessing investment profitability, taxes are but a mere inconvience. Both Dr. Feige and Dr. Hermann admit that businesses can pass through taxes so higher taxes do little to impair economic growth.

At the individual level, lower marginal rates are more impactive on consumption and since greater consumption drives our economic growth your statement has more merit. It is, however, established fact that as income rises consumption as a percent of income declines. If we seek to continue economic growth predicated on consumption then distributing more income to those with a greater propensity to consume would seem wise and expiditious. APT does do this, initially, but the marketplace and pricing always seek equilibrium, much like water. Even if we can avoid hyperinflation, over time prices will drive toward parity with discretionary incomes and we will be back where we started. With a huge influx of incomes in the hands of consumers, prices will become more inelastic, driving prices higher because utility can still be afforded at the higher price. The resistance, through price elasticity, to rising prices, maintains the balance between supply and demand. If it is true that APT will place a heavier tax burden on businesses (a given) then increasing prices will be the offset for the business community.

In our current environment, energy and food prices are escalating, seemingly geometrically. These are not included in the Core Inflation rate - for whatever asinine reason. The Core Inflation rate is often the driver for annual wage increases offered by businesses. If average annual wage increases do not include increases in the cost of necessities then real wages decline; as they have been doing for a number of years. The working folks cannot sit and wait for the far out decision to move to APT.

Further, any macroeconomic impetus, such as Fed interest rate cuts, or changes in tax rates, have medium and long term effects. The short term effect is minimal.

Again, What!? The Fed takes actions with an expected immediate response. They cannot take actions for the medium or long term effect because they don't what events will occur to change the current view of the future. They raise rates to offset inflation but they don't know what inflation will be next year or five years from now. They look at current trends and if they extropolate that inflation rates are rising they take immediate steps to stop or slow it. Since their applications are not pure science they do this in steps to review impacts before taking further action. The reverse is true for potential recessions although they usually take more rapid drastic action. Greenspan lowered rates to alleviate a recession seeking an immediate brake. He did it in steps because the brakes did not seem to be working. Large adjustments to interest rates, at any one moment in time, can have uncontrollable effects on the economy so slow and steady is always preferable. The current tax rebates are geared toward immediate consequence not any medium or long term goal. The hope is that if we can turn around the recessionary spiral things will stabilize for the medium and longer term; not a given. Please, please, please, read before putting your foot in your mouth.

You're right about the Great Depression having multiple causes, each creating feed backs to the others. The crippling tariffs seriously exacerbated the crisis. So we agree then that tax policy was not the primary cause, if in fact it played any role at all.

Crippling tariffs had little effect on the US economy. They affected mainly those countries which relied on major exports. Whether tax policy had much or any effect - I stated that it was not the cause - is arguable. There was a belief at that time that deficit spending was anathema, therefore reduced revenues from tax reductions inhibited any government action through spending. Further, it has been asserted that inequitable income distribution, the failure to put more money in the hands of those who consume more, stressed the demand for goods and services which then created business failures and slowdowns adding to unemployment. All in all a problem still in search of a cause.

The only reason to point out foreign tax "schemes" is to see what works better, and what the current trend is.

I tried to explain to you, apparently failing, that you cannot point to foreign tax schemes as working better without taking a variety of other variables into account. It is like comparing apples to oranges. Trends? Hmmm, would seem a trend should include more than a few data points. The German Prime Minister dropped the flat tax idea, proposed by a somewhat lunatic associate, like a hot potato after the uproar over the idea.

As for how much total tax is collected, APT assumes revenue neutrality for illustration purposes. It is of course the prerogative of Congress to keep that level the same or change it. I don't want to speak for Dr. Hermann, but I think it's the confiscatory nature of high marginal tax rates he was referring to in his Denmark comment.

I realize that Congress can alter the rate but there are limits as to how much they can change them. I have no doubt that Dr. Hermann was subtly implying that my tax proposal made Denmark look like a piker. We do all know your views on government and taxing, using loaded, emotionally appealing, terms like confiscatory adds nothing to the debate.

I would refer you to the information on the APT web site to help clarify how the productive economy is relieved of its current disproportionate share of the tax burden. We're talking about a one-hundred-fold increase in the tax base. Most of the increase in tax base is outside the productive economy and is currently not taxed. It doesn't matter what part of the mouth is used. The model speaks loudly enough for itself.

I read the information earlier. I missed the part on the the increase being outside the productive economy. Perhaps my confusion involves a definition of productive economy. To me the productive economy would be made up of those who produce things; not the workers but the investors and the businesses. The huge increase in the tax base is proposed to come from that sector I would suggest is the productive economy. If I am correct then my original contention stands. You will be increasing aggregate taxes on those sectors responsible for running the engine of economic growth. Whether it is taxed currently is not the issue. The fact is that the productive economy is the primary sector involved in that hundred-fold increase in the tax base and therefore will inherit the bulk of the taxes necessary to maintain revenue neutrality. The implication from your, lower marginal tax rates spur economic growth, statement, is that higher marginal tax rates impede economic growth - I do not accept that premise but that is your contention. The issue again surrounds tax rates versus aggregate taxes. Lower marginal tax rates lead to lower aggregate taxes assuming a common base. It is the aggregate tax load which might affect economic growth, not the tax rates. If we can accept your reverse logic then higher aggregate taxes will cause a decline in economic growth, all things being equal. Dr. Hermann has admitted that APT needs a large economic growth impact to attain revenue neutrality. If APT is causing higher aggregate taxes then a large economic growth impact seems far afield. This is the dichotomy. I don't care which side of your mouth you talk from; but preferably not from both sides at the same time.

Another interesting thought is that businesses, after initial well known adjustments, will have a harder time managing transaction volumes than they currently have in managing for profitability.

I rely strongly on the tremendous credentials of the author of this proposed tax plan. Yes there are unknowns on something new and revolutionary. The only reason we know anything for sure is by putting it into effect. Before that ever happens, those much more qualified than us will analyze and scrutinize as prudence dictates.

Reliance on experts is not a bad thing. It is best if you can rely on more than one, either to reinforce ideas or to offer critiques. Alas, I'm sure you have trouble finding other "experts" with a position on APT, therefore, reinforcement or criticism is ill at hand. One could assert that I have no business taking on a PhD in any subject but I have had extensive corporate experience in most areas of finance, accounting and administration. I have also reviewed, analyzed, approved and created Capital Appropriation Requests in corporate environments. Those are vehicles which provide financial justifications for proposed capital expenditures (investments). My experience suggests to me that some of Dr. Feige's assumptions might lead us to the oft mentioned result of what happens when one assumes.

Right now the order of business is to get the idea out there and under consideration by major analysts and policy makers. Meanwhile, all we can do here is continue to present our thoughtful posts on this discussion board...

Again, even I am confused as to why no "experts" have weighed in. My guess would be that most mainstreamers would come out against the idea, but who the hell knows. I will be happy to engage them too. A kind reference, our thoughtful posts. Am sure you were gritting your teeth on that one.

Doc:

Dr. Feige goes to great lengths expounding the qualitative aspects of APT. Focusing merely on the quantitative doesn't do much to "sell" the idea. It's akin to talking about a 1.25 Ghz computer chip versus a 2.8 Ghz chip; you nor I would ever see the difference.

There is a reason that your archnemesis calls their product the Fair Tax. It is a hook based on a presumed qualitative aspect. You and I both know that it is BS but many will look at the name and think it sounds like a great idea.

However, with APT the qunat side changes due to a significant/quite sizeable expansion of the tax base which despite the shift toward business and the dreaded wealthy, it unfortunately allows the aggregate tax payment to decrease in most cases.

"There you go again" (to quote I'm sure one of your heros). There will be some cases where the aggregate tax payment will decrease but given the revenue neutrality theory it cannot do so in most cases. The only way that could possibly work would be with new transaction activity, which you have predicted, but which is more than just a questionable assumption. With the object of taxation now focused on transactions and with the dollar volume of transactions being greatest among the wealthy and business, there will be a major effort directed at figuring out ways to minimize transaction activity to minimize taxes. You like to poo-poo this based on the tiny tax rate but the aggregate expense will drive this activity.

It will increase the "holding periods" of investment vehicles, it will add a new variable to speculative investment activities, all good things, but that will further reduce the transaction activity. When you change the economic/taxation world in this manner you change all the paradigms and models that history provides us.

You made an appeal awhile back, pleading for we naysayers to give credence to the economic "scientists" and their theories. You suggested that all "scientific breakthrough" is the result of defying "common sense" and without this defiance breakthroughs would never happen. Not an unreasonable assertion, except, economics is not hard science.

Economics has developed a few mathematical models that substantiate postulates, but very few. Economics is a behavioral science, a social science. As such it relies on historical trends based on historical reactions to support premises. Historical actions can be presumed to recur as long as fixed constraints remain relatively constant. It is oft the absurdity of economics that constraints must be held as fixed in order to predict results. When you drastically change the constraints, which APT does, then all results forecasted based on behavioral history are null and void since it is impossible to know what affect the changes will have on behavior. One can presume behavior changes, which Dr. Feige does, but it is little more than guessing because there are no hard facts suggesting the behavioral reaction.

Of course, there are those businesses that are developmental or for other reasons operating at a loss. They will have to raise a little more money than otherwise to cover their cash flow deficit but there will be considerable savings in corporate expenses as we are told exist by our unFAir Tax "friends".

Apparently you have never been involved in a struggling company, let alone a startup one. In those environments if raising a little more money were that easy, fewer of them would fail. The only considerable savings in corporate expenditures that your buddies allude to are the embedded current tax costs assumed to be included in pricing. As I have explained, ad nauseum, if a company is operating at a loss, with prices already containing embedded tax costs, then there is no savings. This ain't rocket science, folks.

CEO's that have looked at this really love it due to those savings and the effect it would have on our economy especially capital investment. One who has considerable foreign market involvement felt it would clearly strengthen his position.

I have often given my opinion of the inherent wisdom of CEO's. They are generally bright fellows but they are not walking encyclopedias of taxation, nor of corporate transaction levels. Your normal mode of "selling" doubtfully conveyed a thorough listing of all the pros and cons; the pros likely, the cons not at all. One involved in foreign markets might be very interested depending on where the bulk of their transactions take place.

When you run across those CEO's wild about the idea, suggest to them that for a small consulting fee I will be happy to advise them on all the vagaries involved.