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 level Number of returns Total income tax
Under $100,000 77,509,159 $271.2 B
Taxes by upper brackets on 1st $100,000 (approx) $ 39.8 B
Above $100,000 11,395,384 $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

Type Volume in dollars Tax 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.

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