Epistemic state: thoughts off the top of my head, not the economist at all, talked with Claude about it
Why is there almost nowhere a small (something like 1%) universal tax on digital money transfers? It looks like a good idea to me:
it’s very predictable
no one except banks has to do any paperwork
it’s kinda progressive, if you are poor you can use cash
I see probable negative effects… but doesn’t VAT and individial income tax just already have the same effects, so if this tax replace [parts of] those nothing will change much?
Also, as I understand, it would discourage high-frequency trading. I’m not sure if this would be a feature or a bug, but my current very superficial understanding leans towards the former.
It’s too much for some transactions, and too little for others. For high-frequency (or mid-frequency) trading, 1% of the transaction is 3 or 4 times the expected value from the trade. For high-margin sales (yachts or software), 1% doesn’t bring in enough revenue to be worth bothering (this probably doesn’t matter unless the transaction tax REPLACES other taxes rather than being in addition to).
It also interferes with business organization—it encourages companies to do things in-house rather than outsourcing or partnering, since inside-company “transactions” aren’t real money and aren’t taxed.
It’s not a bad idea per se, it just needs as many adjustments and carveouts as any other tax, so it ends up as politically complicated as any other tax and doesn’t actually help with anything.
For high-frequency (or mid-frequency) trading, 1% of the transaction is 3 or 4 times the expected value from the trade.
I’m very much not sure discouraging HFT is a bad thing.
this probably doesn’t matter unless the transaction tax REPLACES other taxes rather than being in addition to
I imagine that it would replace/reduce some of the other taxes so the government would get the same amount of money.
it encourages companies to do things in-house rather than outsourcing or partnering, since inside-company “transactions” aren’t real money and aren’t taxed
But normal taxes have the same effect, don’t they?
First (possibly dumb) thought: could it be compensated by printing fewer large bills? Again, poor people would not care, but big business transactions with cash would become less convenient.
I don’t understand the problem you’re trying to solve.
If you just like the aesthetic of cash transactions and want to see more of them, you could just mandate all brick-and-mortar retail stores only accept cash.
If you want to save people the hassle of doing tax paperwork, and offload that to banks, that’s also easy: just mandate that banks offer for free the service of filing taxes for all their customers. If you have accounts with multiple banks, they can coördinate.
If you want to stop high-frequency trading, just ban it.
It already happens indirectly. Most digital money transfers are things like credit card transactions. For these, the credit card company takes a percentage fee and pays the government tax on its profit.
Wow, really? I guess it’s American thing. I think I know only one person with the credit card. And she only uses it up to the interest-free limit to “farm” her reputation with the bank in case she really needs a loan, so she doesn’t actually pay the fee.
The customer doesn’t pay the fee directly. The vendor pays the fee (and passes the cost to the customer via price). Sometimes vendors offer a cash discount because of this fee.
Epistemic state: thoughts off the top of my head, not the economist at all, talked with Claude about it
Why is there almost nowhere a small (something like 1%) universal tax on digital money transfers? It looks like a good idea to me:
it’s very predictable
no one except banks has to do any paperwork
it’s kinda progressive, if you are poor you can use cash
I see probable negative effects… but doesn’t VAT and individial income tax just already have the same effects, so if this tax replace [parts of] those nothing will change much?
Also, as I understand, it would discourage high-frequency trading. I’m not sure if this would be a feature or a bug, but my current very superficial understanding leans towards the former.
Why is it a bad idea?
It’s too much for some transactions, and too little for others. For high-frequency (or mid-frequency) trading, 1% of the transaction is 3 or 4 times the expected value from the trade. For high-margin sales (yachts or software), 1% doesn’t bring in enough revenue to be worth bothering (this probably doesn’t matter unless the transaction tax REPLACES other taxes rather than being in addition to).
It also interferes with business organization—it encourages companies to do things in-house rather than outsourcing or partnering, since inside-company “transactions” aren’t real money and aren’t taxed.
It’s not a bad idea per se, it just needs as many adjustments and carveouts as any other tax, so it ends up as politically complicated as any other tax and doesn’t actually help with anything.
I’m very much not sure discouraging HFT is a bad thing.
I imagine that it would replace/reduce some of the other taxes so the government would get the same amount of money.
But normal taxes have the same effect, don’t they?
It’s not just the “bad” HFT. It’s any very-low-margin activity.
Nope, normal taxes scale with profit, not with transaction size.
One consideration is the government wouldn’t want to encourage (harder-to-tax) cash transactions.
First (possibly dumb) thought: could it be compensated by printing fewer large bills? Again, poor people would not care, but big business transactions with cash would become less convenient.
I don’t understand the problem you’re trying to solve.
If you just like the aesthetic of cash transactions and want to see more of them, you could just mandate all brick-and-mortar retail stores only accept cash.
If you want to save people the hassle of doing tax paperwork, and offload that to banks, that’s also easy: just mandate that banks offer for free the service of filing taxes for all their customers. If you have accounts with multiple banks, they can coördinate.
If you want to stop high-frequency trading, just ban it.
It already happens indirectly. Most digital money transfers are things like credit card transactions. For these, the credit card company takes a percentage fee and pays the government tax on its profit.
Wow, really? I guess it’s American thing. I think I know only one person with the credit card. And she only uses it up to the interest-free limit to “farm” her reputation with the bank in case she really needs a loan, so she doesn’t actually pay the fee.
The customer doesn’t pay the fee directly. The vendor pays the fee (and passes the cost to the customer via price). Sometimes vendors offer a cash discount because of this fee.