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HOW A PAYMENTS TAX WORKS

Your Fair Share in Taxes is Much Less Than You Pay Today

We Are Simply Taxing the Wrong Thing

Collectively, we earn $20 trillion per year. However, there are over $7,244 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 - $7,244

Trillion

Versus our income -

$20 Trillion

$20

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

$5,500 Trillion

$6,000 Trillion

$6,500 Trillion

$7,000 Trillion

$7,244

Trillion

Today we tax our income, which is 0.3% the size of the total economy. That's why taxes are so high!

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 2019

(in trillions)

Cashless Payments

Credit transfers - $44.3

Direct debits - $25.6

Checks - $25.8

Cards/e-money - $7.2

Payment Systems & Critical Service Providers

Fed check clearing - $8.5

Private check clearing - $11.5

CHIPS - $417.5

EPN - $27.9

Fed ACH - $27.9

Fedwire Funds Service - $695.8

NSS - $20.8

Central Counterparties and Clearing Houses

FICC - $1,575.2

FICC: GSD - $1,477.7

FICC: MBSD - $97.5

NCSS - $297.7

Central Securities Depositories

DTC - $119.7

Fedwire Securities Svc - $345.8

Other Organizations

Stock Exchanges - $125.0

CME Group - $1,435.0

Other FX Turnover - $458.0

Grand Total - $7,244.4

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

For someone earning $100,000, taxing payments instead of income would reduce their tax bill from $30,000 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 day. 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 the last 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.

ENGINEERING ECONOMIC VITALITY FOR ALL

© 2021 The Foundation for a Better Economy, Boulder, CO