Dave Gonigam

“What do you think about this?” I asked a relatively quiet room of Agora Financial employees, “The first 100,000 dollars of income…sans tax.”

“I like what I’m hearing,” responded Andrew Palmer, our Web marketing director, “but what’s the catch?”

Ah, yes. The catch. That rebarbative hook. Surely there must be one.

There was.

“Well, the catch is that the government will actually have an extra $700 million to spend, plus a good portion of Americans will have an extra 22% of his or her income to spend,” I responded.

The plan that follows, I first heard at the University of Baltimore on a recent sojourn from happy hour. This micro-tax plan is an amalgamation of research from various pundits, but the first passionate presentation I heard came from a candidate for the U.S. Senate. Kevin Zeese is an Independent, running for one of Maryland’s seats. Here, now, a tax plan for your consideration:

Replace the Federal Income Tax For Most Americans with a Micro-Tax on Wealth Instruments

The discrepancy in wealth between working Americans and the wealthiest is growing ever more extreme. The number of millionaires and billionaires is increasing while the median family income is decreasing and poverty is increasing. The wealthiest are not getting richer because they are smarter or work harder, they are getting wealthier because of a rigged system of finance that protects their wealth. Corporate welfare transfers hundreds of billions of dollars annually from working Americans to the wealthiest Americans. Hundreds of trillions of dollars are traded on stock, bond, and derivative markets which do not create wealth, only gamble on the future performance of the economy. Currency traders have become rich by bidding down the value of different currencies doing serious damage to their economies in the process. This speculative activity is so huge that only a tiny tax on transactions in these markets – a tax of .1% – would raise enough money to eliminate all federal income taxes on the first $100,000 in income – and still create a giant surplus in revenue.

The Income Disparity: Income and Wealth in the United States is not a Bell Curve it is an L Curve*

If the population of the United States were represented along the length of the football field, arranged in order of income the median US family income (the family at the 50 yard line) has an income of $40,000 (visualize this as a stack of $100 bills 1.6 inches high.)

A family on the 95 yard line earns about $100,000 per year, this is a stack of $100 bills about 4 inches high.

At the 99 yard line the income is about $300,000, a stack of $100 bills about a foot high.

One foot from the 100 yard line the curve reaches $1 million (a 40 inch high stack of $100 bills).

From there it keeps going dramatically up with the stack of $100 bills reaching 30 miles for the 370 billionaires in the United States (one billion is one thousand millions!).

see LCurve

Zeese Tax Plan: Tax Wealth More and Labor Less

First $100,000 in Income Federal Tax Free Replaced By A Tax on Wealth Instruments

The essence of the Zeese Tax Plan is for income taxes on the first $100,000 in income to be replaced by a tiny tax, 0.1%, on the sale of stocks, bonds, currency and derivatives. This tax reform will actually produce greater revenue while at the same time facing up to the undemocratic rich-poor divide created by an economic system rigged for the wealthiest.

Current Federal Income Tax Revenue

Income levelNumber of returnsTotal income tax
Under $100,00077,509,159$271.2 B
Taxes by upper brackets on 1st $100,000 (approx)$ 39.8 B
Above $100,00011,395,384$476.7 B

Source: IRS, http://www.irs.gov/pub/irs-soi/03in11si.xls, Income tax receipts (2003)

The taxes on the first $100,000 in income produce $311 billion in revenue. Under the Zeese Tax Plan the first $100,000 in income is federal income tax free and made up by a tiny tax on sales of wealth instruments (a modified Tobin Tax*). Currently Maryland taxpayers pay a 5% tax when they purchase food (in restaurants), clothing, books, houses, cars – the essentials in life, but those who purchase stock, bonds, currency and derivatives as investments pay no tax on such purchases.

Potential Taxes on Sale of Wealth Instruments

TypeVolume in dollarsTax rate 0.1%
Bond Market 2005$500B/day=$130,000B/yr$130B
Stock Market 2003$22,291B/yr$22.3B
Derivatives, over the counter 2004$355 B/day=$92,300B/yr (US market is 23% of world market)$92.3B
Derivatives, exchange traded, 2005$870 T/yr (US market is 58% of world market)$870 B
Currency exchange(2004)$52.2T/yr$52.2B
Total revenue$1,166.8 B

*The original concept derives from James Tobin, a Ph.D. Nobel-laureate economist at Yale University as an excise tax on cross-border currency transactions. In addition to raising significant revenues, and democratizing the U.S. economy this tax will discourage speculation which has led to the collapse of currencies in Mexico, Russia, Indonesia, Taiwan, Thailand, and South Korea in the 1990s.Thus, a tiny tax of 0.1% on the purchase of wealth instruments easily makes up the loss of revenue from taxes on the first $100,000 in income. Indeed, it results in some $800 billion in additional revenue. How this additional revenue should be used will be the subject of a separate paper. In addition, a tax on each transaction might dampen some of the “irrational exuberance” that have typified these markets of late. The dollar volume of over the counter derivative transactions doubled between 2001 and 2004. Among exchange rated derivatives the growth rate was 70% between 2003 and 2005. In September 2005, the Federal Reserve summoned 14 of the biggest banks in the credit derivative market over concerns that their inability to keep pace in processing transactions was threatening the stability of the banking system. A wealth tax would serve two purposes, to act as a stabilizing force on the market and to generate the funds to shift the tax burden from wages to wealth. It would be a significant step toward a fairer tax and economic system.

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

Recent Articles

Addison Wiggin
The Central Bank Experiment that’s Destroying the Economy

Addison Wiggin

When it comes to central bankers and the global economy, you might say the inmates are running the asylum. Today, Addison Wiggin sits down with Jim Rickards to discuss the ever-changing world of finance, the likelihood of hyperinflation hitting the U.S., and the massive economic experiment being conducted by the world's central bankers. Read on...


Laissez Faire
The Real Reason ISIS Wants You Dead

Chris Campbell

ISIS is a radical terrorist organization wreaking havoc across Northern Iraq. But its members come from all over the world - including many from Western Countries. The question no one's asking is why... Why are foreigners flocking to the Middle East to fight alongside ISIS? And how far does Obama really want to go? Chris Campbell explores...


How to Trade October Volatility

Greg Guenthner

When it comes to the stock market, October gets a bad rap. It's true, there have been some major crashes in October (ahem... Black Monday, Black Tuesday, etc.) but on a shorter timeline this month hasn't been nearly as bad as you might think. Today, Greg Guenthner offers an optimistic look at the month investors love to hate. Read on...


What the Reboot of the US Budget Means for Your Money

Byron King

Big government doesn't come cheap. And right now the U.S. government is one of the biggest in history. So far the budget writers have been able to move money around to keep the machine moving. But as Byron King points out, that will soon become much more difficult. Read on for the full story...


Invest Like a Shark in the “New” Stock Market

Wayne Mulligan

In the late '90s, financial TV personalities like Jim Cramer became mega stars - often drawing more ratings the ESPN. But that was over 15 years ago... That couldn't happen again, could it? Today, Wayne Mulligan details the new flock of personalities that are set to cash-in on a different kind of investment boom. Read on...