The Financial Freedom Act is brought to you by the Foundation for a Better Economy

ENGINEERING ECONOMIC VITALITY FOR ALL

© 2019 The Foundation for a Better Economy, Boulder, CO

HOW A PAYMENTS TAX WORKS

We Are Simply Taxing the Wrong Thing Today

Collectively, we earn $16 trillion per year. However, there are over $5,000 trillion in payments each year that are currently untaxed. We should be taxing payments instead of income.

The graph below compares our income to the total payments in the economy.

The volume of payments in our economy - $5,000 Trillion

Versus our income - $16 Trillion

$4,500 Trillion

$4,000 Trillion

$3,500 Trillion

$3,000 Trillion

$2,500 Trillion

$2,000 Trillion

$1,500 Trillion

$1,000 Trillion

$500 Trillion

$5,000 Trillion

 Today's taxes (income, sales, and property) target our income, requiring a tax rate of 33% to meet our current budget.

If we were to tax payments instead of income, we could reduce the tax rate to 0.2%, while enjoying many benefits we cannot afford today.

Breakdown of Payments in the U.S. in 2015

New deposits in banks

New deposits in nonbanks

Stock exchange trades

NSCC and FICC transactions

DT and Fed transactions

FX trades

OTC IR trades

CME commodity trades

Total payments

$1,567 trillion

    $171 trillion

     $36 trillion

  $1,231 trillion

$408 trillion

$311 trillion

$310 trillion

$1,000 trillion

$5,034 trillion

The Federal Reserve tracks the above payments, and the Bank for International Settlements publishes the data in its annual Red Book.

For someone earning $100,000, taxing payments instead of income would reduce their tax bill from $45,000 to just $200.

Why a Payments Tax Would Work Today

In 1913, when income taxes were first imposed, income was the right thing to tax. 

Henry Ford shocked the world when he paid his employees five dollars per hour. Workers could produce more with machines, so their value increased. Both income and production grew.

Everything changed with automation in the 1970s. Wages have been flat for 50 years, while production has continued to rise.

The key to reforming taxation is found in

how the economy responded to automation.

The trivialization of production gave rise to financialization, causing the volume of payments from financial transactions to skyrocket, which left our income in the dust.

How a Payments Tax Would be Implemented

A payments tax would entail debiting a very small amount of each and every payment anyone receives. 

The money debited from a payment would not be credited to any account at all. This would delete the debited money from the money supply.

The Fed would create the money the government spends, which would replace the deleted money and balance the money supply.