H.R. 4646 Debt Free America Act

http://www.govtrack.us/congress/bill.xpd?bill=h111-4646&tab=summary

by devmonk • 16 years ago

25 21 16 years ago

"This is an idea originally floated in 2004 by a single member of Congress, Democratic Rep. Chaka Fattah of Pennsylvania. So far it has attracted little support and gone nowhere. The White House has not endorsed it."

http://factcheck.org/2010/09/1-transaction-tax/

h3h• 16 years ago

I should hope that we're not all waiting with bated breath for the White House to endorse every bill that substantially alters the structure of government.

hendler• 16 years ago

Is this a correct summary?

A national sales tax of 1%, no income tax, and 7 years to pay the debt?

lucasjung• 16 years ago

My understanding is that this is far more than just a sales tax: it is a 1% tax on ALL financial transactions. Other proposed sales taxes to replace the income tax, such as the fair tax, generally only apply to retail sales of new consumer goods. This would go way beyond that.

Write a check to your nephew for his birthday? 1% tax.

Buy something used on eBay and pay for it on paypal? 1% tax.

Support a project on Kickstarter? 1% tax.

Get paid by your employer? They pay a 1% tax.

Sell some shares of stock A in order to buy stock B? 1% tax on the sale and another 1% tax on the purchase. This one is HUGE: consider how many such transactions occur on Wall Street each day. Such a tax alone could quite likely destroy the high-speed trading industry. I'll let smarter people decide whether that's good or bad.

Also consider that all of these cascade. For example: you buy a table and pay a 1% transaction fee. The store paid a 1% transaction fee when they bought the table from the manufacturer, a 1% transaction fee on the shippers who brought it to the store, and a 1% transaction fee on their rent, utilities, and other overhead. The manufacturer paid a 1% transaction fee on their raw materials, 1% to have those materials shipped, etc. I would imagine that this would strongly encourage vertical consolidation in order to avoid these intermediate transaction fees. Again, I'll let the economists figure out how good/bad that is.

tptacek• 16 years ago

Take the words "high-speed" out of that sentence and it will probably be more accurate.

metageek2• 16 years ago

The "no income tax" part doesn't kick in until 2017.

Note that the CRS summary says that the bill states that paying off the debt in 7 years is the bill's purpose. The CRS does not assert that it will work.

I suppose it might work, but I can point to one flaw right now: it cancels the income tax in 2017, not "when the debt is paid off".

DougWebb3• 16 years ago

Seven years is plenty of time for congress to alter that part, and keep both taxes in place. Their justification would probably be to fund the IOU's for all of the money that was borrowed from the "pay off the debt" fund during the first seven years.

roc• 16 years ago

Trivially, no.

The bill isn't exactly clear on my reading. But it's certainly not proposing the equivalent to a 'sales' tax. It would be a 1% tax on all sales, investments, trades, possibly even payments on outstanding debts or even transfers from one account to another owned by the same person. Again, the full extent isn't quite clear to me, but it's definitely far more broad than a traditional 'sales' tax or VAT. And frankly, that's the only way you could gather those amounts.

teilo3• 16 years ago

This would be like cutting out a cancer that, while killing you eventually, is presently keeping you alive.

Anyone who thinks that eliminating the national debt will fix our financial woes does not understand how our current debt-based economy, built around a central bank, works. If the national debt were retired in this way, our financial problems would become much worse than they already are.

swaits2• 16 years ago

How so?

teilo3• 16 years ago

This is Keynesian economics 101. I will not attempt to pass judgment on the wisdom of this system, but it is what it is.

In our current system, and that of almost every national economy in the world, debt = cash. That is is a vast simplification, but it boils down to this: The dollars which circulate in the economy (whether paper or electronic) are dollars which are created by various types of bank loans, treasury instruments, etc. When these obligations + interest are repaid, money is taken out of the economy that was previously in circulation. If the entire national debt were somehow repaid, then trillions of dollars will be removed from circulation. If all personal, corporate, and national debt were paid off, we would have no currency left. In fact, because principal on debt is created by said debt, but interest is not so created, it is not even possible to pay off all the debt. There is literally not enough cash in existence to do it.

This is why it is truly a crisis when the lines of credit get "clogged up", as in the present crisis. If the loans don't start flowing again, we are looking at deflation. One can argue whether deflation is good or bad, of course. As I said, it is what it is.

Construct• 16 years ago

I always wonder if bills like this one which radically alter the structure of our government are proposed in seriousness or merely as a distraction to please certain voters.

Obviously, adding a 1% tax on all financial transactions, as this bill proposes, would drastically change how our economy operates. Keeping the markets efficient and accurately priced becomes much more difficult when any trade comes with a 1% cost. Especially when the 1% is imposed whether it results in a profit or a loss. From what I see in this bill, even selling one stock to purchase another would incur a 1% fee on the first sale and a 1% fee on the purchase of the second stock.

1% may not sound like much, but as money continues to change hands the government's take grows significantly. Let $100 change hands 10 times, and you're left with $90.44 of the original money. Let $100 change hands 100 times and you're down to $36.60.

Of course this scheme would transfer money to the government to pay down our debt (in theory, if the money is used as the bill intends), but at what cost? This additional financial friction could seriously slow down the economy and disrupt efficient market pricing. Finding the proper balance of taxes, debt, and economy growth is a very, very difficult problem, and this solution is not well thought out at all. Furthermore, eliminating our national debt is not going to solve all of our problems, as many would like us to believe.

Throwing ridiculous bills like this in the mix only serves to muddy the waters. It distract us from the real problems and the potentially viable solutions. Let's make small, incremental changes within our current tax structure to fix our problems in a reasonable manner.

devmonk3• 16 years ago

Let's make small, incremental changes within our current tax structure to fix our problems in a reasonable manner.

What would you propose that would eliminate most of our debt in a reasonable manner that congress and the people would back?

hga• 16 years ago

Forget about friction: how much money would this really bring in? Some time ago I read that Switzerland instituted a stock market transaction tax ... and their market quickly lost a very large fraction of its business. US based multi-nationals would e.g. follow all those oil services companies that have moved their headquarters outside of the country (curiously, to Switzerland (and note that this happened before the BP spill)).

Obviously there would be a mass exodus out of instruments that are taxed in this way. People and companies would game the system like mad, descend upon D.C. for exceptions for their "critical" industries, etc. etc.

And destroying or chasing out of the country a large fraction of the US financial sector---which all too many people unwisely desire---could easily result in a net loss to the government, especially when you count secondary effects like a decreased ability to raise capital and vastly less efficient capital markets.

My favorite not so quick fix is the government selling off a very large fraction of the land it owns. What's the compelling reason for it owning this much of these top ten states I just randomly found on the net:

   1. Nevada        84.5%
   2. Alaska        69.1%
   3. Utah          57.4%
   4. Oregon        53.1%
   5. Idaho         50.2%
   6. Arizona       48.1%
   7. California    45.3%
   8. Wyoming       42.3%
   9. New Mexico    41.8%
  10. Colorado      36.6%

H.R. 4646 Debt Free America Act

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