In these times of partisan politics, it’s rare to see something both sides agree on. But that’s the goal of The Financial Freedom Act as proposed by Scott Smith (bio and LinkedIn), the director of the Foundation for a Better Economy in Boulder, Colorado. “When I present to conservative crowds, they say, ‘how do we get the liberals on board with this?’ and when I present to liberals, the say ‘how do we get the conservatives on board? I tell them a true solution appeals to both sides.”
Smith’s proposed act advocates scraping today’s tax system altogether and replacing it with the equivalent of a small fee on the movement of money called a Payments Tax. What compels liberals and conservatives is you can have your cake and eat it, too. Because the total volume of payments made each year via the sale of Treasury bonds, mortgage backed securities, and futures is so high that it dwarfs the collective income of citizens, it’s possible to slash the tax rate and generate enough revenue to balance the budget.
“Over $5,000 trillion changes hands each year in the economy of the ultra-wealthy, and by contrast, we collectively earn $16 trillion. We’re simply taxing the wrong thing,” says Smith.
Smith is not a fan of implementing a transactions tax on the New York Stock Exchange, though. “They’re missing the mark on that proposal,” states Smith. “The stock exchange represents less than one percent of the total volume of trades among the very wealthiest in our nation.”
The Financial Freedom Act proposes replacing income taxes with a 2/10ths of 1% fee every time anyone receives money, whether from the sale of their house, billions of dollars changing hands from the sale of a block of treasury bonds, or your paycheck. For someone earning $100,000, that would slash the total taxes they pay from $30,000 to just $200. But by capturing all the payments that aren’t taxed today, it would generate enough to balance the budget, plus pay for many benefits that aren’t possible today.
Smith gets his information from the Federal Reserve, as published in the Red Book, an annual publication of the Bank for International Settlements in Basel, Switzerland. “The idea of replacing income taxes with a general payments tax is new, because the data has only become widely available in the last decade. Professor Edgar Feige of the University of Wisconsin was the first to recognize the trend, and I’ve been keen to get this in front of Congress ever since.” The Milken Institute recently published a paper by Dr. Feige that supports the concept of a payments tax as proposed by Smith.