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Doc:

Sure hope you don't have a lot of used car inventory to move.

I can't quite figure out whether your statements are smoke and mirrors or just a failure to think things all the way through.

You frequently refer to the expanded tax base as the euphoric solution to driving the APT tax rate so low. No doubt that is a true statement. You then tend to try and draw comparisons of the .3% rate to the rates existing under the current system, the 20% or 19.7% or 15% or 30% or whatever. In those comparisons you seem to lose the thought of the effects of the changed tax base. All current tax rates, imbedded in prices or otherwise, are based on profits not on the activities of securing those profits. Therefore you cannot compare rates versus rates, only.

I have provided examples where companies, depending on profit margins, will pay more under APT than under the current system. I have provided many examples showing that "revenue neutrality" is extremely at risk in both business and individual examples. Now your argument is always, "but such a low tax rate will exponentially increase transactions because of the slight impact" creating even greater revenues. Financial transactions are not like sirloin steaks. If your local market runs a great sale on sirloin steaks those with resources will load up, buying much more than normal, and freeze them for later use. The same propensity will not occur with financial transactions.

I'm sure, more than once, we can find in this hallowed blog site the oft favored slogan of tax haters: "If you want less of something, put a tax on it!". Although somewhat trite it is a cute adage and bears some semblance of truth. From that it would follow that if you tax transactions then you will get less of them, not more of them. This is especially true when you consider the other oft used phrase here, that "many financial transactions are currently tax free".

Then you throw in that we will see a rush of foreign investment in setting up businesses in the US because of the low tax rate (low in per unit application not necessarily in aggregate). This fails to understand the methodology of foreign companies setting up shop here. Tax rates are of almost no importance to a foreign company looking to establish a new business location here because they can manipulate profits via transfer costs and often avoid any US tax liability from an operating unit situated here. APT will take away much of the advantage of transfer pricing and impose taxes on financial transactions necessary to take place here to support an operation. In the current energy cost crisis it is possible we will see more foreign businesses being set up here to offset transportation costs. Enacting APT could cause some to rethink that decision.

It is imperative when attempting to "sell" an idea that you get all your logic laid out so that it is consistent and you don't leave yourself open to contradictory reasoning or pie in the sky rationales.

As for cascading, the issue is all over the map since companies do this in varying degrees. Those who don't buy intermediates from outside will be little effected. Those who are primarily assembly operations and rely heavily on purchasing intermediate products could be faced with serious price increases due to the practice. APT will force all those kinds of businesses to reevaluate their processes. Some will live with the increased costs and pass them through, others will go to more vertical integration and take on the intermediate manufacturing themselves. The analysis is relatively simple. Agree or not, it is a simple truth that there is a compounding tax effect, with APT, if a business purchases a high volume of intermediates. In net the whole issue is likely not a gamestopper, "fatal flaw", but it may have an impact on "revenue neutrality". Once again, the argument you always avoid, in the aggregate APT is not a "tiny tax".

Inflation, there I said it! Your view of inflation impacts is somewhat sophomoric. There is a big difference between the CPI and the PPI. The CPI is calculated from a "basket of goods" that are fairly generic to all consumers and therefore somewhat universal in the US economy. The PPI is predicated on prices which suppliers charge to other business customers. Given the vast differences between industries and their product purchases a rise in prices of some commodities may not affect those customers who don't purchase products made from those commodities. A company not involved in food processing will be little affected by rising prices of agriculture products. Currently energy prices are affecting all, consumers and commercial entities.

Have to mention here, that we see inflation becoming more and more of a problem, due to rising energy and food costs. I seem to remember a poster here arguing, vehemently, that inflation was tamed, it was no longer a concern. So much for the wisdom of some.

Businesses, when faced with increased prices of purchased materials, have greater options than consumers. A substitution option is common to both but businesses can also look at productivity gains by altering processes that may allow them, in the short run, to ameliorate increased costs. Many of them can exert economic pressures on suppliers to hold down price increases. Modifying inventory levels and therefore purchased quantities might be viable. In either case, in the long run, businesses will pass these cost increases onto consumers. Continued profits demands no less. There is a willingness by most consumers to accept higher prices due to rising costs. We all know this happens and that for businesses to continue and to provide jobs they must recoup these increased costs at some point in time.

Now your constant harangue about the 20%, from the Fair Taxers, is again not comparable to APT rates because the application base is different. You can't argue the tax savings because, if there is any, it will be predicated on the transaction volume versus profits and there is no one absolute statement that applies to all situations. The inertia to pass through the APT tax may be tempered because the current 20% or 30% or 15% will not be going away. It will stay in current pricing and inur to profits. If the marketplace has established an acceptable price for a good or service there is little motivation for a company to reduce prices due to an increase in profits or a reduction in costs. As a shareholder you would seek to lynch any Board of Directors who suggested such a thing.

I would agree that once the FICA tax goes away there will be a significant savings to many companies. It's not quite as Valhallic as you would have it since, on average, labor costs are around 50% of total expenses for businesses. Service industries may run closer to 60% but manufacturing is likely in the 40% range. The salary cap and the exclusion of health insurance costs net the savings to around 2.5 to 3% of total expenses. Not bad but far from 7.5% savings.

Remember also that FICA doesn't go away until Phase II and who knows how long that will be after legislating APT. Once FICA is eliminated the pressure on "revenue neutrality" is greatly exacerbated. A brief mention: In Phase III we do away with all state taxes, no doubt further savings to businesses with the exception of materials purchased for the manufacture of products for resale. Currently most states and localities exempt purchases consumed into the final product from sales taxes. APT knows no such exceptions.

FICA also invokes the fallacy in establishing APT rates on "revenue neutrality". I understand that this was the dictate to the President's Council and it is common when viewing any new taxation methodology but reality is that government spending is not that flexible. Yes there is room for reductions and savings but little of the budget is discretionary, notwithstanding how you feel about military spending. In 2017, by current estimates, the continual increase to the SS surplus is gone. Since SS funds are not sequestered in a lock box the SS payments will become an even greater draw on the budget. Instead of excess SS collections adding to the general revenue stream the SS collections will begin to be paid out on a straight line basis, dollar for dollar, with a gradual increase of expenses over collections. It, therefore, makes sense to view any new taxing scheme as more "expense neutral" than a focus on revenue only.

I have mentioned before, and there seems to be some provision for it, that the state tax Phase will likely necessitate a separate collection process, possibly even 50 of them. There is no way that the various states are going to accept some sort of arbitrary allocation of funds from a federal government pot. Each state has, currently, their own rates and methodologies and needs for the variety of state taxes collected. Most states are continually altering rates, etc. to solve their own budget problems. Most states also are estopped, constitutionally, from running deficits so annually, if not more frequently, adjustments to their tax structures must take place. There would be no way to establish an allocation formula that could react to the varying conditions among 50 states. Nor is it likely that any process could be established to allow changes to occur on a dime. Given this premise we create a much more complex collection process to facilitate each state. That creates a huge dilemma for determining who gets taxed at what rate and for the benefit of which state. It will vastly increase the audit function as each state will want to verify that they received their fair share. This will very probably require collecting more information at the transaction point than is currently envisioned in the APT write up.

In summation ( a heavy sigh envelopes the room), top side views often lead to euphoric expectations. I, and Brian, have repeatedly mentioned that, at best, you have a huge "revenue neutrality" problem and, at worst, a "fatally flawed" concept. Predicating that a huge influx of foreign money will add enough to the pie to offset any miscalculations is folly for the reasons I laid out above. It truly is a "Field of Dreams" approach to arguing around issues. Absent that phenomenon you are left with a relatively fixed population that currently provides all the tax revenues and no matter how you alter the taxing scheme the same amount of revenue has to come from that same population. This does mean that some will have to pay more than they do now and others will pay less.

You have failed to adequately answer the questions of inequity regarding cash transactions, regarding businesses operating at a loss; look at the current economic environment, business after business reporting huge losses for which they will have no tax liability and in fact receive benefit from carryback/carryforward provisions, yet under APT their losses would be aggravated by, for many of them, billions more in taxes on top of their losses.

You fail to consider the cultural impact of the change to centuries old moral standards. Throughout history taxes were collected on profits/gains or wealth or on, generally, discretionary purchases. APT will have us taxing the acts, of saving money, of investing, before knowing if we will gain or lose, when paying off mortgages, and most of the tax will be paid on interest expense, or buying and selling a home, when making charitable contributions. Food purchases will be taxed, medicine purchases will be taxed, so to hospital bills and doctor visits. Tutors and special education requirements for learning disabled children will be taxed. College education expenses will be taxed at multiples of .3% if done through loans. As I pointed out, business capital expenditures via borrowing will incur, in total, a .9% tax and that is only on the principal portion.

Of course here comes the; but its only a "tiny tax". Initially that fact will assuage any anger over what actions are now being taxed. Over time, memories fade and the stark realization pops back up that I am being taxed for doing good things whether I profit from them or not.

The argument for APT has some merit if the rate did not have a practical limit. Since we have accepted a 1.2% limit before avoidance attempts become ubiquitous, we have a slim margin for error. This is especially pertinent given the current mood about corporate taxes. Folks from both sides of the political spectrum are toying with the idea of severely reducing or eliminating corporate taxes. The rationale is of course similar to APT's in that it will bring a plethora of foreign investment and more and more jobs. Folly! Worse, poppycock! The other argument is that its passed through so it would be a net zero effect. Also folly, maybe not poppycock. If either of those actions should take place APT loses a big portion of its base for "revenue neutrality" without raising the rate significantly so that "revenue neutrality" can be achieved from individuals only. Can we talk limits again?

You also pooh-pooh the inflationary impact of a huge increase in discretionary funds. I know that you and Dr. Feige believe this can be controlled by the Fed through the money supply. I don't subscribe to monetary theory except in a fairly stable economy. Look what Volcker had to do to interest rates to tame inflation in the late 70s, early 80s. Want to see prime at 20% again? I lean more to Keynesian theory that demand drives inflation and with a great deal more money in their pockets, consumers will drive demand for goods up across the board. Prices for everything will become more inelastic. American consumers have an insatiable desire to spend and given a windfall to spend that is unlikely to be dampened.

Due to the aggregate amount of taxes that businesses will be faced with, they will, indeed, pass the costs through to consumers. If your total tax expenses are in the millions or billions you will not leave that on the table. Further, businesses will seek financial transactions overseas to avoid taxation. Not tax havens per se just run of the mill French banks or British banks, Germany, Italy, maybe even China or India banks. Now you can try and legislate around that but you think tariff wars are horrendous?

The last bastion of argument! Compliance savings! Now first of all we know that a slimmed down crew of IRS agents will be necessary to audit the banks collecting the tax. Then we will need another group to monitor those who will receive benefits via specific legislation, tax rebates to the poor or for special ed needs or whatever else pops up. Someone will have to collect, maintain and approve requests for special payments. Then the increased audit costs for implementing the states' needs. Pretty soon that compliance savings is whittled away. Your feeble argument about the economy historically handling massive unemployment is also folly. We would be talking hundreds of thousands maybe even millions of jobs lost, not thousands, not tens of thousands but possibly millions. And these would not be $15,000 or $20,000 or $30,000 a year jobs. These are $50,000, $75,000, $150,000 and even $1,000,000 paying jobs. Absorbing unemployment of that magnitude is nothing our economy has ever seen.

Damn, I'm even more convinced APT is a bad idea.

I do apologize but I doubt there is much here to send to a PR firm.

Doc:

I assume, in fact believe, that by now you know that my jabs are mostly in fun. Others are so sensitive and insecure that they fail to be able to deal with that. As far as we know we get to go around this life one time and there's not a lot of sense doing it if you can't have fun along the road.

Of course, insecurity is one thing, ignorance, quite another. To wit:

APT does not tax transactions. The tax is conveniently and efficiently collected at the point of transactions.

Exactly what is it we are taxing if not the transactions? Why is the title of the program: The Automated Payment Transaction Tax?

Currently we tax profits and incomes. We do withhold taxes at the point of payroll and we do require quarterly estimated payments from those whose income or profits are not strictly from wages but the final settlement is when we file our annual tax returns. We don't call the current system: The Automated Withholding, Manual Quarterly Payment, Settle Up Payment When Filing Tax.

It is one thing to posit sensible retorts. It is quite another to regurgitate meaningless tripe just to impress upon everyone that one is still around.

To your credit you make a good attempt at logical discourse. One can only assume, since your expertise lies in nonfinancial areas, that you sometimes have a comprehension problem. Notwithstanding that you are indeed peddling used cars.

Of course those other purveyors of nonsensical, idiotic platitudes portend that their arguments are reasonable discourse. From these sorts of proclamations the fault always lies with the reader for failing to grasp the wisdom imparted. There are always those who should be like Kinder, seen and not heard.

One can but anxiously await your enlightening response to my overly adequate diatribe.