Automatic Micro-tax on all payments
The automatic micro-tax on all payments puts an end to hundred years of tax imbroglio. Budgetary policy will be enhanced with funds without earmarks. The automatic micro-tax stabilizes financial markets.
Fiscal and Financial Systems must be challenged
Ideology, rules and regulations of present tax systems date back to the 19th century, tax legislation meanwhile is of absurd complexity and no longer in line with our global and digitalized economy. The financial system, for his part, operates in sort of unrestricted freedom, keeping open all options. Excesses on financial markets lead us from crisis to crisis. Capital no longer finances ideas on the scale of one to one, quite on the contrary markets have to live with enormous credit-driven speculation. On foreign exchange and commodity markets trading with a leverage of 100 to 1 is not unusual, a tactic which logically leads to increased price volatility – with the consequence that managing the real economy becomes close to impossible. Indeed, production cycles cannot be altered and adapted within seconds. Alarmingly, the perversion of capitalism is not questioned by economic sciences though the deficiency is man-made and no law of nature.
Micro-taxing is efficient and just
For the past 25 years we can observe some wide-ranging financialization of the economy, greatly enhanced by the banking and shadow-banking industry. The altered structure of the economy allows a different fiscal approach by charging the immensely large monetary flows with a uniform micro-tax. Monetary flows of OECD economies are of giga and peta size (2), a micro-tax of two per thousand on each payment transaction is sufficient to finance the respective national budget. In spite of their enormity, the payment flows are not empirically analysed, they remain the unknown as was the cardiovascular system for the old medicine. Switzerland well illustrates the new constellation. The Swiss growth national product (GNP) of CHF 650 billion (Milliarden) correlates with an overall payment transaction volume of CHF 100’000 billion, or 150 times the Swiss GNP. In 2012 and 2013 some of the main transaction flows were as follows:
- In 2012 net payments settled through Swiss Interbank Clearing SIC amounted to CHF 30’000 billion. Net means without sight deposit transfers (Giroüberträge) of CHF 65’000 billion on the respective accounts banks hold with SNB, and which would bring the SIC payment volume to a total of 95’000 billion (3).
- Swiss domestic foreign exchange alone claims CHF 40’000 to CHF 50’000 billion as its own. Forex transactions are settled through special platforms such as CLS (4).
- Large amounts of payments are processed directly in-house by PostFinance and the banks, furthermore payments are settled in cooperation with correspondent banks. For these segments no official bank statistics are available.
The transacting of CHF 100’000 billion of payments needs computer support, but then again new actual facts open new horizons. Today, the following approach may be envisaged: In 2011, Swiss tax revenues and social contributions come to a total of CHF 170 billion. By charging a micro-tax of two per thousand on CHF 100’000 billion payment transactions, the proceeds are CHF 200 billion. All existing taxes and contributions become obsolete and may be replaced by the standardized micro-tax.
The new fiscal approach implies a fundamental change of perception. The micro-tax no longer aims at the income of the individual citizen or at corporate profit, it does not charge consumption or some behaviour, it focuses exclusively on payment transactions, which are the common denominator within any economy. The automatic micro-tax code relieves to a great extent both individual tax payers and corporations, the relief being of financial as well as of administrative nature. Basically, taxable income of e.g. CHF 100’000 will be micro-taxed with CHF 200 instead of CHF 20’000 income-tax, VAT, etc. With the micro-tax as tax code, Switzerland gains in attraction as business site. Especially for start-up companies the facilities of the micro-tax come as a long overdue blessing.
Being automated, the micro-tax is no longer inquisitory, quite on the contrary it is freed from any ideology. Since it is easy to handle, fair, and financially a small burden for corporations as well as for the individual taxpayer, tax evasion will be a thing of the past.
Implementation of the micro-tax
Simplicity and efficiency of the new tax system will not elate all of the experts. The micro-tax breaches into territories considered as Holy Grail. One objection may be, that the micro-tax can easily be avoided, e.g. by making payments outside of Switzerland. Accountancy will however quickly reveal tax dodgers. Ways and means of the micro-tax must be honoured and respected. In case of persistent tax elusion, the authorities may re-impose the old system, which is to tax those at fault on income and profit. Facilities and benefits granted by the micro-tax are strictly for citizens and corporations who respect the new ruling. Another apprehension may be that Switzerland cannot introduce such a revolutionary tax code on its own. Again, this objection has no validity since Switzerland relies on direct democracy. The local debate on the micro-tax will have its resonance abroad, and other nations will realize that any OECD economy operates with astronomic payment flows, which in turn provide for an equally large tax base. By introducing the micro-tax, Switzerland may for once be in the role of a pioneer.
The automatic micro-tax is uncharted territory. As mentioned above no official statistics are available for several payment flows, and some analyses may be ballooned by duplication. Therefore, the micro-tax must be introduced pragmatically with a test run. Parallel to the ordinary tax levy the test run charges an imperceptible 0.05 per thousand micro-tax on any payment debit and credit, including transfer payments on SNB accounts. The test run will reveal the factual size and structure of all payments transacted. Once the micro-tax is “switched on” for real, its revenue may first substitute the VAT, and then other taxes and contributions on federal level. In case of continuous surpluses, debts may be reduced and tax payers are to be reimbursed directly, analogue to the US tax refunds. Thus, the tax sovereignty claimed by cantons and municipalities will be preserved and respected, though the tax declaration will not disappear from one day to the next. The coming years will provide the authorities with empirical data and the necessary experience in order to manage the revenues of the new tax code. Mentioned sovereignty of cantons and municipalities may later be reviewed.
Fiscally, the micro-tax incorporates exceptional advantages such as simplicity, abundance and fairness. In addition to these assets it brings transparency into the financial system. Transparency must be granted, since we all are subsidiarily liable for the financial system, as experienced in 2008 when tax revenue was used to keep the banking system afloat. The micro-tax will furthermore smooth excessive volatility on the financial markets, since transactions with too high leverage are no longer profitable. More stable markets will certainly be welcomed by the real economy.
Since interest rates are near or even below zero, monetary policy will become an edgeless instrument and has to be substituted by financial policy. The latter aims at real money, it involves investments in infrastructure, education and research, and social affairs. The micro-tax will provide the necessary resources for financial policies which have to face the ongoing digital-industrial revolution.
Conclusion: the micro-tax transfers the overall tax burden on much larger shoulders. Switzerland will no longer charge a tax of 30 per cent on CHF 650 billion GNP, it will charge e.g. 2 per thousand micro-tax on CHF 100’000 billion payment transactions. Tax progression will be replaced by tax regression. Swiss households will have notably more disposable income, capital investments will get enhanced, and the whole of the economy can retake its breath. The micro-tax is here to serve us all.
(1) Felix Bolliger, “Reinvent the System”. Micro-Tax on Monetary Transactions
(2) See Edgar Feige, Wisconsin University, “The Automated Payment Transaction Tax” (APT Tax); Simon Thorpe, CNRS Toulouse, France, “A Flat Rate Financial Tax to replace all taxes?”
(3) SNB monthly bulletin, C1, January 2013. Old statistics including “Giroüberträge”
(4) BIS Triennial Central Bank Survey September 2013