I am working on rearranging the layout of the book so that I can keep a usable sample, that will give you the basic information and then remain compliant if I choose go Kindle Select.
The CUT Tax Sample
A look at the Currency Use Tax as an alternative to the Income Tax Code
By Jeffrey P Schaben
September 13, 2013
What is the Currency Use Tax?
“In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed an interest in doing this, and I am prepared to join them.”
Barack Obama
“What I am proposing can not be any simpler”
Jeffrey Schaben
This chapter will be a quick overview and each section will be looked at in detail in the other chapters. The CUT Tax (Currency Use Tax) will be a flat one-time tax taken on any new deposits made from a non-linked account. So if you deposited $100 into any financial institution the tax will be withheld. Approximately $2 to $4 will be debited from your account to be held in a collection account as a portion of your tax. The tax will be distributed to the federal government based on specific time frame. The chain of custody of the money and banking fees will be handled in a later chapter. This transaction will happen regardless of source of income or revenue (wage, sales, selling stock, gifts, or even refunds). There will be a limited few transactions that will be free of this tax, primarily government payments like Social Security could be included, money into tightly defined escrow accounts, transfers from linked accounts, return of principal, and money deposited by government agencies.
My first thought on the creation of this replacement for the income tax was an idea of a Gross Revenue Tax (GRT). This idea on what it should be partially came from of the idea of biblical tithing. I wondered what percentage would be necessary to fully fund the government if the form of a tithe was instituted. A tithe refers to a tenth part or 10% and is collected on first fruits, which I believe means gross revenue; many would argue it means after expenses or on profit. Regardless, I will use gross for the tax to remove the need for filing. Considering how to collect the tax without filing led to the idea of an automatic deduction at the financial institution.
What percentage did I come up with? After looking at everything and doing some mental math based on estimates, I first determined this percentage to be around 3.8%. These estimates were obtained by looking at different companies’ annual reports, volume on the stock market, and a few major retailers’ gross revenues, then averaging the results across different industries. This was to get an idea of the annual cash-flow within the United States. Companies would also be able to bring back money from overseas branches that are hard to quantify in my math, that and inclusion of non-profits could bring this percentage down. I realized these were additional areas of potential revenue that I overlooked in the first calculation. I think the final percentage could be closer to 2%. Of course, this was done on spitball math with no real in-depth comprehensive research, more of a baseline of averages that I figured. You can also get close to the 3.8% number using Gross Domestic Product (GDP) figures, retail sales, stock market averages, and other leading economic indicators, providing I am reading them right. Therefore, if I am wrong, the real percentage would be higher and that may affect the viability of this tax. However, I will use 3% as a baseline example throughout this essay to commemorate the first Income tax rate of 3% on income above $800 established in 1861. This was signed into law by President Abraham Lincoln. Although this tax was repealed in 1862, and was never enforced. This was because there were no enforcement mechanisms. (http://www.ask.com/wiki/Revenue_Act_of_1861)
One of the reasons why the name changed from Gross Revenue Tax (GRT) to the Currency Use Tax (CUT Tax) was that the Gross Revenue Tax sounds like a tax only on business. Whereas, a Currency Use Tax does not exclude anyone. Moreover, the GRT is used by the state of Delaware, and a few other states. This tax is targeted at specific organizations. And is done by filing a state income tax. The Financial Activities Tax (FAT) was another possibility. However, that may have been confused with the FAT tax proposed on junk food. A Currency Use Tax sounded more neutral. Personally, I like the concept of usage taxes over an arbitrary system based on self-reporting. But, it technically is not a use tax since it is taxed on acquisition instead of use. However, so is the Road Use tax based on the amount of fuel you buy, not on amount of roads you use. So it is based on acquisition too. Your tax will be based on amount of money you acquired, so the more money you acquire the more use tax you will pay.
You can easily call this a use tax because the government is responsible for the overall management of our currency, from its strength (purchasing power), ensuring its security (i.e. controlling counterfeiting, and Federal Deposit Insurance), controlling fraud, and regulating banking. The government should be able to extract a user fee as a cost of creating and managing a secure form of barter accepted around the globe. Since the fee would be fixed for everyone it is logically fair in the fact that the more currency you acquire the higher your total tax. Furthermore, the CUT Tax revenue could be used to secure the federal budget since the overall stability of the currency relies on the stability of all aspects of the government. Therefore, providing sufficient funding for all of the government is the within justification of using these funds.
The CUT Tax would affect anyone who either banks on US soil, draws an income or does business in the US; citizenship is not a requirement for this tax. The only requirement is to conduct financial activity in the United States and it’s territories. The CUT Tax, unlike a sales tax, will not have any exemptions to the general public. Most sales taxes have exemptions for businesses and organizations that buy goods and services that are part of the daily operation of the organization. The CUT Tax does not differentiate between producer or consumer of products, it only collects tax on the new gross revenues produced. These tax exemptions will not be observed.
I was looking for a tax that would be automatic and thus hard to evade. In doing so, there would be no need to file, and if the rate stays low, it would not harm lower class citizens. If there is no need to file, we do not need a huge bureaucracy to manage it. The best part of this system is that the Federal Government does not need to gather information on private citizens or private business. It can be managed blind by the financial institutions, with only the employees of the financial institutions having personal information on the account holder. This would allow the government to view the raw numbers without the need to give out account information on individuals or groups. This system could not have been effectively used when the 16th Amendment that allowed an income tax was ratified in 1913, and probably would only be practical in the past two decades. Now I would expect that 99% (based on total currency not on volume of transactions) of all legal transactions do not involve actual cash. That would make this system practical.
Many people are wondering about this form of taxation on people without a financial account. Unless you only receive cash, you would still have a tax liability for cashing checks. The businesses that cash checks will have to pay this tax when depositing the checks in their bank account. Therefore, they will recover this tax in their check cashing fees. You may say that makes this tax a higher burden on the poor, and I will agree with you. That is, if they choose to use these services instead of traditional banking services, they could have higher fees. No tax can stop the exploitation of the poor. It happens now with tax refund loans offered on tax returns. However, in the free market, some businesses may waive part or all of this fee to encourage shopping in their facility. Then there is always the fear of people going to a cash only system, and I will address this issue in Chapter 4.
Transfers between linked accounts would be tax free. By linked accounts, I mean accounts that share the same identity. Your checking would be linked to your savings, retirement, or any other account you register with your financial institutions. This can be easily verified through social security number, or a Federal Tax Id number.
Identity theft is a growing concern and affected about 940,000 actual filers and a possible 1.5 million undetected (fraudulent filing with IRS) people in the 2011 filing period (Lederman, Huffington Post, 2012). http://www.huffingtonpost.com/2012/08/02/irs-identity-theft_n_1733905.html
This system would close the filing part of tax collection and thus eliminate one source of the threat from criminals. Since the IRS would not need information on every individual and company in the US, this would eliminate a lot of paperwork and databases that contains sensitive information. The only reason the IRS, or any branch of government, would need to look at the information of a private citizens or private organizations would be to investigate fraud or other criminal activities, and there is a well established system for the obtaining of a warrant from a judge that has been used by law enforcement for years. Therefore, the government does not really need this information (voluntarily) given to them.
I have excluded principle from the CUT Tax for various reasons. The first reason would be that this money is not new revenue. In a sense, this money has already had the tax collected on it. I know using this argument will open up the concept that all money used in all investing has been taxed once. However, to do this you would have to reinstitute filing to determine capital gains. Most interest bearing accounts collect the interest on a particular day of the month and can easily be identified as new revenue and the CUT Tax can be collected at that time. This system can also be easily applied to credit instruments such as home mortgages, personal and business loans. However, there may have to be special accounts setup for individuals that loan money to other individuals for the proper handling of the CUT Tax. This will not be the case in an owner-financed deal since the equity collected would then be assessed with the interest as the payments are made.
Currency has two primary uses. The first is the buying of commodities. The second is the lending of money. I include wages in the commodity category because time and talent is an individual's most important commodity. Whether it is the buying of your time for labor, the use of your mind or any particular talent the individual is offering. Even currency itself is a commodity. That function is only used by a small percentage of people; like George Soros, bond traders, or hedge fund managers. That leads to the second but most primary reason that I have excluded principle: the interest rates are too low, and making the principle subject to the CUT Tax would cause a collapse in long-term bond issues and mortgages. Most home mortgages would be close to junk bond status because the interest collected may not cover the CUT Tax, which would mean anyone holding these issues would be losing money with every payment made. Many would want to shed these investments and we would have a small repeat of the 2008 mortgage meltdown. On the stock market, I do not see this violent of a reaction. Of course, there could be a correction that would precede the transition between the two tax systems. However, it would be a more measured response, and it would probably happen months ahead of the actual change over. Moreover, most collapsing prices would be due to profit taking, or other tax advantage situations prior to transition. Thus only a temporary situation.
One of the biggest controversies in this plan will be the elimination of tax exempt status to all non-profit entities (unfortunately, even charities). I will cover my reasoning in depth in another chapter. The one thing I will say now about it is that it will give these organizations back their full first amendment rights, and if this affects campaign finance rules, then I guess congress will have to come up with a new set of laws. This will mean that all of their campaign funds will be taxes. Therefore, they can join us in paying their fair share of taxes. Possibly, if they are helping to pull the wagon, they may be too busy or may not want to keep throwing more things into the wagon.
The one page tax document
“The tax code is very inefficient. Both the personal tax code and the corporate tax code. By closing loopholes and lowering the rates, you could increase the efficiency of the tax code and create more incentives for people to invest.”
Ben Bernanke
This would be the approximate wording of the Currency Use Tax Law:
The Tax rate shall be accessed x% of the gross revenue of all new revenues deposited into an account held at a U.S. financial institution. The tax rate shall be determined as thus: X% = Total dollars spent in the approved and signed Federal Budget divided by projected Gross Domestic Revenue, subtracting any approved bond issues, times 110% if the Nation Debt exceeds 300% of gross revenue to the Treasury from the previous FY(fiscal year). The multiplier reduces to 105% if debt is under 300% and falls to 100% if there is no National Debt or a surplus. If no approved federal budget is in effect, the rate will adjust every quarter to meet current revenue demands of 110% of spending. Quarterly adjustment cannot exceed 0.25% with a maximum/minimum of a 1% year over year.
Exemptions shall include Social Security and other listed direct payments from Federal Government to individuals (possibly including military hazard pay). All official federal, state, and local government accounts are exempt from this tax. Any funds deposited or transferred into these government accounts will not trigger the CUT Tax. All return of principal is not considered new revenue and thus excluded from this tax, only interest, fees, and penalties are subject to the CUT Tax.
Qualification of tax includes all entities who do business within the United States and it’s territories and have an account with an American financial institution operating within the United States and it’s territories, regardless of account holder’s citizenship or status, whether corporate or individual.
The linking of accounts for transfers between accounts of individuals or organizations who share the same legal identity. This linkage allows the transfer of existing funds between accounts without further tax liability. Only new revenue is counted as a taxable event.
On the collection procedures. The financial Institutions would be the primary collector of the CUT Tax. The institutions would exercise the tax after the initial deposit of new revenues into an account. This tax would be deposited into an escrow account until the first business day of the month. Upon transferring the money into the United States Treasury account on the first business day of the month, the Financial Institution shall retain x% as form of a service fee. Congress shall set this fee in the current year’s fiscal budget. In the event of no approved budget, this fee will be last approved fee in a valid Congressional budget with a .25% per year increase until a budget is passed and approved. The names on all individual and organizational accounts are shielded from any Government Agency inquiries unless said Agency obtains a proper writ or court order, thus insuring confidentiality of Financial Institutions’ clientele.
All current and future use taxes will not be affected by this tax code and will operate independently of this tax code. This tax code cannot be initialized in its first year without a signed and approved Federal Budget.
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