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Your first point is the most commonly asked question and forms the basis for the Fair Tax people to criticize APT. this is the so-called "cascade" effect of taxing every transaction in the production chain.

However, this is a false argument

There is a net savings to every business along the production chain of approximately 20% in the form of corporate income tax, employer FICA contirbution, compliance issues, accounting, etc. This is a finding of the Fair Tax people and is well researched. The 0.3% tax doesn't compare to the savings. The Fattah proposal as I understand it is at a higher rate of 1% or a little more which likewise does not compare to the savings realized. Also, such small percentages are usually quickly dimissed in the contract bargaining process as suppliers bid for jobs -- discounts and other tools are offered at a far greater level than 0.3%.

Regarding your concern about vertical integration, this is a point that cannot be refuted directly. One can only say that the percentage is again so low that it should not drive such a decision. There must be greater cost savings for other reasons that would make such costly change feasible. Then there is the old statement that can be used when considering such a favorably low individual tax rate -- Is the tendency to favor vertical integration sufficient reason for all citizens and businesses to continue to pay 50 or so TIMES more tax than we would have to under APT and continue to worry about IRS compliance?

I hope that answers your concerns. The Fattah solution we believe is unnecessarily complex, requiring higher rates some of which would interfere with the foreign exchange and other financial markets. This interference is the natural ceiling for the APT tax rate so that gov't couldn't just raise the rates so easily. Of course, since we are only relying on half of the potential APT tax base for our rate calculations there will be plenty of excess money to pay down the national debt for example. Alos, putting that much more money to work in the economy will cause a huge increase in transactions thereby creating more cash to the gov't -- then they'll stop bugging us (maybe).

Brian, good to hear from you again. We are old debaating partners by now and I know I will never convince you of many of your favorite points. However, I would like to pose the question a little different. Explain to me why a business would not benefit from a net cost reduction of 19.7% (based on the Fair tax folks' estimate of 20% average savings to businesses), no matter where they are in the supply chain?

Another question if I may, if we EXPAND the tax base 70 to 100 TIMES and spread the same revenue requirement over the new expanded base will not all payers pay substantially less? I know some or you would insist all business taxes would be passed along but there would still be a large amount of new money brought to the table.

Lastly, indeed, the capital markets will provide much of the tax (with the exception of interbank transfers and intergovernment account transfers which are exempt) but they should since they are utilizing the freedom and markets created and maintained at no smalll expense by our government. As long as the rate is reasonably very small (as APT is and Fattah is not), and the result of the expanded tax base large, facilitating captial expansion, those markets will respond positively as has been the case in India with their Security transaction tax.

As long as you maintain the quantitative relationships of very small tax rate, very large savings, and very large expansioon of the tax base it all works well. If you don't maintain these paramenters I agree with you that it is a bad idea. That is why the Fattah proposal at a higher rate is not a good idea. As well it is what will keep a reign on the government raising the rate significantly (we feel 0.6% to 0.7% per side is max -- but the research on this point needs to be done). You must always discuss quantitatively with APT, because qualitatively (taxing everything) it sounds terrible.

So we agree the savings to most businesses from the absence of corporate tax, SS employer share and compliance issues WILL offset the small tax and any cascade effect. Not to deny the existence of that darned effect, but the fact that its negativity is offset. I realize there may be some intra-corporate transfers necessary that will decrease the savings to maybe 17 to 18% but that is still pretty good. Then there will be some businesses that are losing money, have no employees and do their own taxes -- in which case there would be no savings and a negative impact. But we can't ruin a great idea with a rare exception.

Now to the greater issue -- I need to approach this in a different way. Let me address what I believe is the effect of greatly expanding the tax base regarding what is taxed. I recognize that income earned by individuals, corporations and other entities is considered by many the only true tax base because it represents newly acquired wealth by THAT particular individual or entity. But in a sense, it too is just a transfer payment within the national economy. When new goods are produced from raw materials value is truly added and if the nation has a positive trade balance in constant currency value that too is added wealth -- otherwise everything is either existing asset/property or transfer payment/cash flow. APT captures much more of these transfer payments than just income and does so at a rate that will not interfere or significantly effect such transfers. Sure daytraders will hate it but they don't run the place. There are many income oriented transfer payments that the current system exempts or misses entirely that APT picks up -- a big one being foriegn exchange. Then there are the non-income transfers that APT relies on to distribute the burden ie stock market losses etc. Sure this adds to the individual's tax bill, if you are thinking in the old system, but on a strict transaction basis, because the rate is so low, there is still a net savings in general. Let me use an example. Someone makes 100K in salary, spends it or saves it, and churns his investments 100K, profitably or at a loss it doesn't matter -- he has 300K in transactions and pays $900 total tax. Now sure he may have been taxed on losses which would not have happened under the old system but he also didn't pay nearly $20.000 in IRS and FICA taxes. Now sure if that same individual was a day trader and "churned" his account to the tune of nearly $7 million he would have a tax bill of $21, 600, same as the old system. It is always important to talk quantitatively with APT because the very low rate usually negates the qualitative arguments about taxing too many things and accumulated costs.

To summarize, the result of expanding the tax base ~70times will not cause "everyone to pay 70 times less in tax" (that was an exaggeration for effect -- 10 to 20 times on average is more accurate). It will distribute the burden over many many more transfer payments in the economy than just adjusted gross income. The effect for a large majority will be a significant savings and for some very few it is a breakeven or even a rare loss BUT at least the IRS will be gone from everyone's lives. Businesses will save less, a goood percentage instead of a multiple, but they generally will save. Also, the economic effects of this widely distributed tax burden, with the resultant savings, will contribute positively in the form of capital formation and increased economic activity with more .....transactions!

OK, I think we understand the reality of the cascade effect and the cost offset of business savings of around 20%. Whether the tiny tax is passed along or not will be lost in the flurry of other potential cost increases facing business of much greater magnitude. Once the APT tax is included in that cost structure its done, over, finis - not to be added on top year after year as the increases represented by the wholesale inflation rate does.

Let me approach the idea that the large individual and business tax savings cannot be real since we are not increasing the population -- implying that only individuals ever pay taxes. Well surprise that is just not true. All sources of profit -- that would be lots of businesses, trusts, foreign businesses can be taxed and have those profits slightly reduced without causing havoc in the markets or requiring they be passed on somewhere. The APT tax base is gigantic and much of it consists of transactions that will simply absorb the tax primarily as an "opportunity cost" to participate in the greatest economy and markets on Earth. The pie chart in the Frequently Asked Questions section under #2 shows the additional sources of tax revenue the sections labelled "Foreign Exchange and related transactions", "Stocks, Bonds, Options, Futures,etc" and "Transfer and Savings transactions" represent the factors that account fopr the expansion of revenue source by about 70 times. Since this new source is available and we share the revenue requiremnt of the government is it no wonder that virtually everyone's tax burden is lowered. Now if you argue that these new sources are invalid because they don't represent real people and the taxes paid will find there way to the real people -- I say that you may be able to theorize that but it just is impractical in the real world. I might begin to agree with the theory if the rate was 3% or 5%, but as long as it is maintained at a low 0.3% per side it just won't happen. In trading and negotiations such a small percentage is lost in the bidding, for example the difference between bid and asked prices. The high volume traders that cause volatility in the markets will be effected and their behavior modified, however, the magnitude of such change is indeed insufficient to seriously effect market liquidity. It is in anticipation of such behavior changes that the APT plan cuts its own calculated tax base arbitrarily in half to account for this in a conservative way.

Of course we cannot dismiss the $800 bilion in savings estimated to be realized with the switch away from our current system of tax returns and enforcement. This sum, which represents about 30% of our budget, also includes taxes now able to be collected from the underground economy, non-filiers, and illigitemate deductions from our current obtuse system -- since they all eventually need to use a financial institution.