The idea: Replace all existing forms of taxation with a single uniform tax on all transactions. In practice, any transaction that takes place would carry with it a charge (on both sides) that would be automatically calculated and collected. In this sense, the APT is best thought of as a brokerage fee – one that gets applied every time money moves in or out of a bank account.
Crucially, the APT would be implemented alongside the elimination of all other forms of taxation. It would replace income, corporation, and capital gains taxes, as well as fuel, estate, excise, and sales taxes/VAT.
Why it makes sense: The APT would be both unavoidable and straightforward to administer. By requiring banks to automatically collect the fee in real time, governments would be able to eliminate – or at least radically scale-down – their existing taxation bureaucracies, while individuals and businesses would never again have to file a tax return.
The APT would also broaden the tax base considerably (by a factor of ten according to some estimates), meaning that in order to remain revenue neutral, the rate could be set as low as 0.35% on each end of the transaction. Thus, for consumers, businesses, and employees, the levy would be barely noticeable.
A further advantage of the APT is that the tax rate could be adjusted automatically to account for temporary revenue shortfalls, or, conversely, to simulate the economy. Any changes, moreover, to the tax rate would be transparent, predictable, simple, and applicable to everyone.
This leads on rather nicely to the philosophical case for the levy. Unlike most other taxes, the APT can be justified with striking cogency: The tax is essentially a service charge paid to support the infrastructure that makes commerce possible. It is not a tax designed to redistribute wealth (although that would be a by-product of the tax), but is instead a service charge paid for the “maintenance of those institutions that protect and facilitate the acquisition and exchange of property rights”.
Could it happen? Given that transactions in stocks, bonds, and currencies would constitute the bulk of the tax base under the APT system, its implementation would be met with considerable resistance from the financial sector. Admittedly, the APT would likely suppress liquidity and reduce the profitability of short-term trading, and this could have severe consequences for the jurisdiction bold enough to implement the new tax first. That said, while it’s true that the APT would be bad news for high-volume traders and short-term investors, the abolition of income and corporation tax would be highly attractive to long-term investors. Thus, while the APT might discourage speculative market activity and investment, it could in fact encourage lower-risk financial activities.
The APT also has left-leaning critics who contend that the tax would be regressive since there’s no evidence to suggest that the wealthy engage in more transactions than the less well-off relative to income. However, in response to such criticism the response ought to be simple: While the introduction of a flat rate might appear regressive, in cash terms the APT achieves equity and fairness in so far as the wealthiest portion of the population executes a disproportionate share of financial transactions. In any case, whether or not the APT is indeed progressive, the simple fact is that the tax burden of the poorest in society would be drastically reduced under the scheme.
If the APT is to ever graduate from “interesting idea” to “genuine alternative”, it will likely have to do so as part of an international conversation about the future of revenue generation. The scale of the financial shock that an implementation of the APT would induce makes it unlikely that a single jurisdiction would introduce it unilaterally. Countries with major financial sectors like the US and UK will have to take the lead in considering the idea, and only public pressure will ensure that they do so.
Likelihood of happening: 15% (Keep dreaming).