Even Fairer Than the Fair Tax . . .

. . . I'm basically for a properly implemented Fair Tax. The cost of compliance, both in terms of dollars and in stress, with the current byzantine code is substantial. Simplification alone, could help pay for a much lower overall tax burden. On top of that, any tax code that doesn't require reporting of income, and taxes all people within the borders of the United States equally, distributes the burden of paying for government services more equitably, and would create incentives for increased consumption at the high end, and increased savings at the low end of the economic spectrum.

But I think the technology is here, or at least possible to develop, to take a national consumption tax one step further. With a sales tax, you only capture all legal sales, but there is a lot of economic activity that doesn't count as a 'sale'. On top of that, a national consumption tax would encourage the growth of a hidden cash based economy as the tax rate to equal the current revenue would need to be around 17%.

I'd like to see that burden drop to no more than 5-7%, and here's the way to do it, tax all TRANSACTIONS, not just sales. Any time funds are transferred from one entity to another, the gov't would 'skim' off five cents for every dollar spent. The total economy is $13 Trillion a year, but I've never been able to find the total transactions in dollars annually. That's not a statistic that's kept, or even guessed at by economists as far as I can tell. I would imagine for each dollar that eventually adds to the total GDP, that dollar gets passed around at least 3 or 4 times. I could be way off, it might be half that, or it might be five times that, I really don't know. But if 3 times is the right number, then you could tax transactions at 5% and still get to the approx $2 Trillion in annual revenue that our gov't seems to believe it requires to function (I bet if they went on a diet they could get by with only $1.5T).

The first step to making this happen would be to change currency so that it could only be stored electronically through bank accounts, or on debit cards with the ability to communicate with each other, and a tracking system that records transactions as they are made (without recording who the individual parties are as the transaction happens). The technology is available, it would just require a few small innovations that are already technically feasible and would be less expensive to implement, monitor, and deploy than the current process of printing paper money and minting coins. For this to work as an acceptable currency, the ability for parties to remain anonymous and invisible to the government, even while their transactions are taxed the appropriate amount, would be crucial. People would have to trust that this isn't a trick to increase surveillance, and the government would have to prove that the transactions are taxed fairly, accurately, and anonymously. The system would have to be hacker proof, while also having built in safeguards to make it impossible to use the tracking of transactions to turn into the tracking of people (whether by the gov't itself, or by others).

The advantages for this kind of system are worth the risk. All transfers of dollars, anywhere in the world would add to the US government's revenue. It wouldn't matter if the trade is illicit, or licit, the US government would get a cut. The total underground economy has wildly varying estimates as to its size, but it's not a crazy assumption to make that it's at least a tenth the size of the total economy within the United States alone. Building in a system that's blind to the kind of transaction being made would tap that resource. Plus an anonymous debit card system, backed by the US government, and guaranteed to be untraceable, would become the de facto currency of black marketeers and other reprobates worldwide. Instead of a briefcase full of 500 Euro notes, two smugglers wanting to swap $1,000,000, could do so electronically and anonymously. That could be worth a Trillion annually in revenue for the US government, alone. Bad people are going to want to do bad things, and get paid for it, might as well take a cut of the action. Having been the de facto reserve currency for bad guys around the world has helped bolster the US economy, and the rise of the Euro as a reserve currency for the black market is one of the things driving the rising Euro v the Dollar (having a 500 euro note really helps, you can stack a lot more value in a single briefcase full of euro than dollars right now). This would take away one of the tools our government uses in the War on Terror (and the War on Drugs), but the benefits would outweigh this loss.

All transactions (other than bartering) would add to the government's coffers, whether you're giving allowance to your kid, your boss is paying you for two weeks worth of work, you're showing your appreciation for a very talented stripper, or you run out to the store to buy some bananas. Interest income from savings in banks would be the only thing exempt from this transaction fee, otherwise the fee itself would cause inflationary pressure.

It's a pie in the sky concept, possibly completely impractical, but if it is practical at all, it might be worth a look at. Simplifying the way the federal government collects revenue, anonymizing the process, and speeding and streamlining the ability of people to move small or large amounts would have many economic benefits.