If U.S. budget gridlock had not ground rational thought to a standstill, creative options for revising the tax code might be possible, such as a tax on stock transactions to raise money and discourage micro-second trades. Another option would be a toll tax on money movement, as ex-prosecutor William John Cox suggests.
By William John Cox
The political coma of the U.S. government induced by Congress and its failure to represent those who elect it can ultimately be traced to the unfair and complex system of income taxation. Better for the country and more equitable for its taxpayers would be a toll tax on the movement of all money along the nation’s economic highway.
Not a national sales tax, not a value-added tax, not a flat income tax, and not a speculation tax, but rather a slight levy should be imposed on every single financial transaction. Not just every time you fill up your gas tank or buy groceries; we also should hear a tiny “ka-ching” every time stocks, bonds and futures are bought and sold, every time currencies and derivatives are traded, and whenever an oil company buys a new drilling rig or a bank rolls the dice in the financial casino.
The federal government could easily operate on revenues produced by a “toll tax” of less than one percent on the movement of all money. Significantly, the payment of taxes would shift to those who most profit from government − from individuals to corporations and from the laboring poor to the wealthy elite, who would pay taxes on their money games and spending for luxuries, instead of their “income.”
A toll tax would result in a slight increase in the overall cost of goods and services; however, the toll would apply to all monetary transactions, including financial manipulations by the wealthy, who engage in every imaginable scheme to avoid having any “taxable income.”
A “transaction tax” was first suggested by James Tobin 40 years ago and expanded upon by University of Wisconsin Professor Edgar L. Feige, who has proposed an Automated Payment Transaction Tax. Professor Feige believes the payment of taxes should be split between the transaction parties and paid immediately.
While the automatic payment of taxes into sequestered tax accounts by financial institutions could and should be easily accommodated, most individuals and companies would find it more difficult to comply. Moreover, there would be a temptation to avoid taxes by engaging in cash transactions.
For most taxpayers, collection of the toll tax could occur somewhat like the current income tax, in that individuals, small businesses and corporations would still prepare and file an annual tax report. The preparation of returns, however, would be simplified and tax fraud greatly reduced.
Let’s consider a married couple with joint earnings of $100,000. Their employers would still prepare 1099 and W-2 forms, and the couple would file a return setting forth incoming money. They would then deduct the amount paid out for health insurance, including Medicare, and further reduce their outlay by the amount paid into Social Security, IRAs, 401(k) plans, and into federally-insured savings accounts. From a policy standpoint, these funds are not spent until withdrawn and circulated.
When allowable deductions are subtracted from income, the difference would be how much money the couple spent. Their toll tax would be paid on the balance, and even without any deductions, a one-percent tax would only be $1,000. Since, however, it has been suggested that a 0.35 percent toll tax would produce the same revenue as the present income tax, the couple’s annual toll tax could be as low as $350, even without deductions.
In addition to simplifying their accounting procedures, a toll tax would provide other benefits for businesses and corporations. Businesses, corporations and other organizations should not have to pay a toll tax on their payroll – to the extent they are owned by U.S. citizens and their salaries are paid to U.S. citizens – since salaries would be directly passed through to their employees to spend (and to be taxed) in the economy.
But payrolls paid to foreign workers by American businesses should be subject to the toll tax, as the money would not pass through the U.S. economy. This provision could provide an incentive to reverse the trend of “outsourcing” American jobs.
Finally, while the Earned Income Tax Credit was well intentioned, it has encouraged widespread fraud and many resent it as a socialistic redistribution of income. The credit should be eliminated, and all spending above an established “poverty line” should be reported and taxed.
In this way, every individual, rich and poor, and every business, large and small, should support good government by fairly contributing to a uniform toll tax that is the least painful and most equitable − a true “win-win” for all.
William John Cox is a retired prosecutor and public interest lawyer who writes on political, policy and social matters. He can be reached at email@example.com.