House may consider new transaction tax.

[I AM NOT THAT GUY 5,715]

A debt-free America? Yes – it’s possible

By Lanny Davis

We all know, liberals and conservatives, that the growth of the U.S. national debt is, to use a favorite word of our time, unsustainable.

Americans owe, as of July 2010, more than $13 trillion to our creditors — mostly foreigners who have loaned us this money over the years. This is 90 percent of the nation’s gross domestic product. By next year we could be above 100 percent. We are paying more than $300 billion in interest on this debt, mostly to foreign lenders.

Meanwhile, our annual deficit, currently running above $1.6 trillion, continues to add to the national debt.

We all know there is only one answer to paying down the debt and balancing the budget: cutting spending and raising taxes. Both are necessary. Getting leaders of both parties to be honest about that and to have the courage to do something about it is the great challenge faced by the Bipartisan National Commission on Fiscal Responsibility and Reform — headed by Erskine Bowles, former Clinton White House chief of staff and currently president of the University of North Carolina — and Alan Simpson, former Republican senator from Wyoming.

One idea for raising taxes to pay down the debt is the bill introduced this February by Rep. Chaka Fattah (D-Pa.). His “Debt Free America Act” (H.R. 4646) would impose a 1 percent “transaction tax” on every financial transaction — whether paid by cash, credit card or any form of financial transfer, the only exception being transactions involving the purchase or sale of stock. Theoretically, everyone would pay one cent on the dollar for every such transaction in America every day — whether $3 million on a $300 million business acquisition, $300 on the purchase of a $30,000 car, or $5 on a $500 ATM withdrawal.

To reduce the impact of such a flat tax on the poor, Fattah’s bill provides for a 1 percent tax credit for couples earning $250,000 or less ($125,000 or less for individuals) and discretion by the Treasury Department to exempt certain transactions on which lower-income people disproportionately rely. Another idea would be to amend his bill to exempt all transactions below $500.

Using 2008 numbers as an example: There was $755 trillion in total transactions that year. If you deduct the exempted $312 million in stock transactions, that leaves $443 trillion in new revenues, minus the cost of the tax credit and other possible measures to soften the impact on the poor. This means that with Fattah’s transaction tax in place, there is a real chance for eliminating the national debt within the next 10 years. In the long term, the transaction tax could replace the need to rely entirely on the income tax, which too often favors wealthier taxpayers who can game the system with fancy shelters and expensive tax lawyers and accountants.

To prevent future Congresses from raiding the proceeds from this “dedicated” debt reduction transaction tax, Congress could establish a separate trust fund, controlled by trustees, not the Treasury Department, who are by law instructed to transfer all proceeds from the transaction tax only to pay down the national debt (and possibly reduce the deficit) and for no other purpose. Congress could also require that only by a two-thirds vote of both houses could such trustee instructions be changed and the proceeds used for other purposes.

Of course, Congress can try to change the dedicated purpose or the two-thirds requirement for changes in the future, so there are no absolute guarantees. But there might be a national political movement — supported by resolutions in both houses of Congress — to ask all candidates running for office to promise not to change that two-thirds requirement until the national debt has been repaid.

Are you confused? An idea that would raise taxes, spread the pain, pay down the national debt and require pledges from politicians to protect the dedicated revenues? Is this a liberal idea or a conservative idea? Red-state or blue-state?

I think it’s both — it’s truly a purple idea. There may be other ideas — but this one strikes me as better than a “Value Added Tax,” or VAT, which is too complicated, or a national sales tax, which only affects consumers at the retail level. Fattah’s “transaction tax” concept is at least universal — although there needs to be some relief on its impact on the less well-off.

In any event, I don’t believe any new tax proposal can pass unless, at the same time, liberals are ready to cut entitlement programs and conservatives are ready to close corporate tax loopholes.

But of one thing I am certain:

We are not going to dig ourselves out of this deep hole of debt that will burden our children and grandchildren and beyond unless all of us — Democrats and Republicans, liberals and conservatives — are forced to hold hands and jump into the pool together.

Good luck, Mr. Bowles and Sen. Simpson. We will certainly need your help — especially to give us the push into the pool.

Read more: http://dailycaller.com/2010/07/07/a-debt-free-america-yes-its-possible/#ixzz0t7imO1oJ

[^_^ 5,021]

The projections using 2008 data don't take into account how the introduction of this new tax would change behavior (consumer, corporate, non-profit, government, etc.).

That said, it sounds like an interesting idea. +1.

[I AM NOT THAT GUY 5,715]

The projections using 2008 data don't take into account how the introduction of this new tax would change behavior (consumer, corporate, non-profit, government, etc.).

That said, it sounds like an interesting idea. +1.

Sounds an awful lot like a stamp tax, where an official stamp had to be placed on all official documents, newspapers, etc. Seems to me some folks got upset about that last time.

What is the difference between a sales tax and a transaction tax?

[^_^ 5,021]

What is the difference between a sales tax and a transaction tax?

Sales are a subset of transactions?

[Ban Hammer 13,352]

not too many houses and cars will be sold.......

[^_^ 5,021]

not too many houses and cars will be sold.......

It might have a dampening effect on speculative home buys, especially when the "most likely" profit isn't significantly more than the 1% tax. It would hit the upper end harder than the lower end, perhaps driving prices down further.

It would also very likely dampen new car sales for brands where equally reliable used cars are available at lower cost.

But the vast majority of home and auto sales happen because life demands them. If your car breaks down and you live in an area where you need one, then you're going to buy one. Yes, you may modify your behavior to buy cheaper, but you're still gonna buy. The same is true, to a lesser extent, for home purchases. No one needs to buy a home this month (since renting is more or less ubiquitous) but the emotional drivers behind home ownership aren't going to go away with an added 1% tax. People with growing families are still going to want to establish residence in areas with better schools. Retirees are still going to want to downgrade. New immigrants are still going to want those starter homes in neighborhoods somewhat nicer than the ones they initially lived and toiled in.

Life doesn't stop with a 1% tax. But behavior does change, and that's why I don't buy those projections based on 2008 data.

[Hilarious Clinton 452]

Tax revenue isn't the problem. It's the SPENDING that's the problem.

Oh, nevermind.... go out and put a large purchase on your credit card to make yourself feel better.

[mawilson 2,133]

not too many houses and cars will be sold.......

Not too many houses and cars are sold as it is...

[mawilson 2,133]

Using 2008 numbers as an example: There was $755 trillion in total transactions that year. If you deduct the exempted $312 million in stock transactions, that leaves $443 trillion in new revenues, minus the cost of the tax credit and other possible measures to soften the impact on the poor.

I'm sure he meant $312 trillion, not million.

What about forex, futures, options and bond transactions? If I buy a mini-Dow future contract that's

worth $50,000, I sure as hell am not going to pay a $500 transaction fee.

Other than that, I like it!

[Ban Hammer 13,352]

Not too many houses and cars are sold as it is...

be even worse with that tax. just think of all the out of work realtors and car salespeople roaming the streets.

[mawilson 2,133]

be even worse with that tax. just think of all the out of work realtors and car salespeople roaming the streets.

That's ok - they can get free benefits with all those trillions in new revenue.

[mawilson 2,133]

...or $5 on a $500 ATM withdrawal.

Now *that* would suck.

Paying $5 to deposit $500 and then $5 to withdraw it makes no sense.

Bank deposits/withdrawals should be exempt.

[Mr. Big Dog 10,747]

Other than that, I like it!

Well, the problem with it remains, though, that every tax started small, many taxes were raised for specific purposes but later ended up being raised and / or in the general fund anyways. Now, they could even come up with iron-clad language that this tax will be used only to pay off debt. That, of course, might just encourage more spending and more debt since we now have a new mechanism to pay any such debt off. If the debt rises too much, no problem, add a half a percent to this transaction tax. And then another half a percent, and then - well, you get the picture.

[mawilson 2,133]

Well, the problem with it remains, though, that every tax started small, many taxes were raised for specific purposes but later ended up being raised and / or in the general fund anyways. Now, they could even come up with iron-clad language that this tax will be used only to pay off debt. That, of course, might just encourage more spending and more debt since we now have a new mechanism to pay any such debt off. If the debt rises too much, no problem, add a half a percent to this transaction tax. And then another half a percent, and then - well, you get the picture.

The only way to change that is by electing fiscally conservative politicians, otherwise they will always spend more than they take in.

[IndigoSkies 168]

Tax revenue isn't the problem. It's the SPENDING that's the problem.

Oh, nevermind.... go out and put a large purchase on your credit card to make yourself feel better.

That's not what contributes to the national debt. Noone cares about your person debt.

On topic, if we are all so concerned about the national debt we should all put our money where our mouths are. That is contribute to reducing the debt. I wouldn't mind paying a reason amount of fee for every transactions to the government such as during buying or selling a house. It's not like I buy and sell house everyday. It will probably happen once or twice in my life. I also wouldn't mind paying a a reasonable fee to use ATM transactions. The keyword is reasonable. I don't mind contributing to my country in reducing its debt if it means my country will be better off and I will be better off and the society will be better of in meaningful and tangible ways.

Edited July 8, 2010 by IndigoSkies