**The Withdrawals Tax**

**By Prof. Patrick R Colabella CPA and Prof. Richard J Coppinger CPA**

**St. John's University, New York**

**Introduction**

We first introduced Withdrawals Tax (WTX) in 1996)[^1]. In this paper we
intend to develop a more practical model with realistic implementation
capabilities. We concentrated our research on similar
transactional-based systems, some proposed at one time or another and
one actually in use today[^2]. We quickly discovered that systems based
on the same general principle evoked sharp criticism from the academic
community. Opponents usually cite cascading, vertical integration,
bartering, offshore evasion schemes, currency hoarding and a general
fear of turmoil in the capital markets as major concerns. Over the years
since such systems have been proposed, these criticisms have effectively
prevented any mainstream application of this type of tax. However, in
our opinion, we have found many of the critical challenges to be
overstated and see technological advances in electronic commerce and
banking changing the arena in which we can now evaluate this model.

We did not ignore the most compelling concerns but we had to settle on
one unyielding fact; that no one can reach tax nirvana. This tempered
our evaluation of the WTX allowing exploration of points of view beyond
the strict biases of economics. Our approach was to logically quantify
the discernable benefits in the system, weigh them against the concerns
and see if we could realistically live with this type of tax system.
While we concluded that there is enough value in the WTX to warrant
further perfecting a workable model for mainstream application, we
acquiesce that the WTX may cause some uncomfortable transitional
changes. Nevertheless, we concluded that a certain amount of
restructuring to our business practices in order to adapt functionally
to the WTX system may be worth the effort.

Th reader should not lose sight of basic premise of the WTX model which
is: 1) To synergistically combine the elements of the three major tax
systems that the WTX will replace, and 2) To completely automate the
collection process and eliminate any draconian compliance and reporting
system. The reader must also avoid the natural tendency of most people
to contrast the WTX assuming the basic principles of the existing tax
systems. Since the income, sales and estate tax systems are so strongly
embedded in our psyche, most of us cannot imagine life without them and
this makes it difficult to accept the principles of the WTX.

**System overview**

The WTX generally applies the withdrawals of individuals and businesses
alike with minor modifications. Conceptually, it was modeled as a
federally administered tax umbrella predicated on purging three major
tax systems from both the federal and state levels of government: the
income tax, the sales/excise tax and the estate, gift and inheritance
tax. The WTX was prototyped as a revenue-neutral system which means that
the system is capable of generating the same revenue as the systems it
will phased out.

The WTX would incorporate and coordinate the autonomous collection of
both federal and state revenues. The tax revenue, accumulated in a
clearing account, is electronically allocated to the various federal and
state treasury accounts by strict legislated formula allowing each
participating governmental unit to autonomously direct and control their
respective pool of revenue[^3].

The WTX uses a low single rate of tax over a very broad tax base. The
rate is a composite federal and state tax rate. For analysis purposes,
we use a rate of five percent, which consists of a three percent federal
portion and a two percent state portion. The actual implementation rate
may be different. In many of the comparable systems we researched, the
rate was less than one percent.

The WTX would be assessed electronically by a standardized computer
process and taken directly from a taxpayer's bank account. Mechanically,
a debit of five percent is made on the gross withdrawal amount or the
equivalent transfer of value flowing from a taxpayer\'s account and
transferred to the applicable governmental account. The source for all
accounting of the tax would be through the banks and the taxpayers'
accounts.

Withdrawals would not be able to be made unless there are enough funds
available to pay the related tax. Therefore, a \$100 withdrawal would
result in an overall \$105 deduction from a taxpayer's account with \$5
being directly transferred to the government's account. If there were
only \$100 in the account, the taxpayer would be able to withdraw only
\$95.24.

The WTX would not apply to every bank debit. Disbursements made from
funds acquired from direct financing activities and credit card use are
not taxed at the point of disbursement but rather taxed upon withdrawal
from the account to retire the debt. It is important to point out that
refinancing the debt would be made out of debt proceeds and not
subjected to the WTX. Only the actual retirement of debt is subject to
the tax.

By necessity, the WTX will also have to apply to certain non-bank
transactions such as asset transfers made by gift and in certain
corporate reorganizations and liquidations that occur outside the
banking system. This application of the tax will require a simple
reporting system be maintained but the collection mechanism would remain
processed through the banking system. The anticipated reporting system
for such transfers is largely in place under current income tax
reporting requirements[^4].

# The Model

# Principles of WTX taxation

One of the foundational elements of the WTX model is the fact that
taxpayers use their economic equity either for some gainful purpose,
consume it or just give it away. The WTX focuses the taxation process
squarely on the taxpayer\'s active and passive accumulation and use
equity[^5]. After all , that equity is the economic basket from which
all taxes will actually be paid.

By extracting a tax on the uses of accumulated equity, we effectively
tax the accumulated income component of that equity. Therefore, the WTX
can be viewed as a back-loaded income tax that is also progressively
regulated in the process. Equity used for consumption or transfer of
wealth, whichever the purpose is for the withdrawal is coincidentally
taxed.

The WTX effectively taxes the traditional tax bases as a composite and
we believe that there is more synergy in the WTX system than using
stand-alone tax systems. As non-integrated systems, income, sales and
estate taxes are natural adversaries to each other. This means that, in
their coexistent operation, evasion of one always ricochets to one or
both of the other systems thus defeating one another. Therefore, the
combination of the systems into a composite captures revenue lost by the
cascading of evasion tactics.

The most compelling aspect of the WTX model, is the unilateral
automation of the entire process of federal as well as state tax
collection[^6]. By using the banking system to collect and account for
the tax, virtually all tax reporting and compliance is coincidentally
eliminated along with the built in biases of tax deductions and credits.
The impact of that is huge in terms of government cost and the
elimination of jobs associated with the system. The expected reduction
in compliance costs would be massive[^7] in both the public and private
sector and this will translate into enormous budgetary relief for the
government and likely tax relief for the taxpayer. In turn, this will
inevitably enhance capital production in the private sector and allow
the government to achieve a better redistribution of wealth.

Finally, as the WTX forges an unbreakable union of the banking system,
the taxpayer will find it very difficult to avoid or evade the tax if it
is instituted as we modeled it. In addition, the simplicity of an
automated tax eliminates the human capital that is exhausted by
taxpayers in the pervasive litigious confrontations between them and the
government under our current system. This latter benefit effectively
shrinks the ominous specter of \"big government\" and enables government
to focus on the more desirable processes of prosperity and democracy.

## Detailed operation

The focus of the tax is *generic* withdrawals by check, debit advice or
exiting wires to bank accounts from the taxpayer\'s financial
institution regardless of most intended purposes. The tax base would be
simply a percentage on all debits to accounts with **any** financial
intermediary. For this purpose, a financial intermediary is any
institution that offers traditional banking services. These institutions
would include savings and loan associations, commercial banks,
securities firms and insurance companies. Any other institution that
essentially provides banking type services would also be included.
Essentially they will operate taxpayer accounts that are specifically
structured to administer the tax.

**The WTX bank account**

The WTX bank account will operate like combined checking and mortgage
escrow accounts. In other words it will have two sub-accounts, an
operating account and the escrow account. All funds deposited in the
account will go into the operating account, such as paychecks, business
receipts and rents etc. unless they are earmarked for non-taxable
distribution and placed in the non-taxable sub account. Such deposits
would include funds credited to an account from the proceeds of loans
where disbursement is not a taxable event. Other deposits that may be
similarly earmarked like welfare payments or some other amounts that the
government may wish to exclude from the tax. Currency, once withdrawn
from the account cannot be replaced in the account without taxing it
again unless certain control mechanisms are in place. (See *Perishable
Currency Model* - appendix B)

**The WTX securities account**

The securities account is a taxpayer's investment account. This would
encompass all funds in securities, money market funds, commodities and
the like that are under the management of a particular institution. The
income making activity of the account namely the security purchases and
sales would not be taxed. Instead, the account would be treated like an
IRA account, taxing all withdrawals regardless of their nature. This
account would have no escrow component. Redeposit of cash would have the
same problem as above. (see appendix B)

**The WTX insurance account**

This account is essentially an insurance policy**.** Theoretically, all
insurance premium payments would be taxed as they are withdrawn from the
taxpayer\'s bank account. Accordingly, claims paid out of the insurance
account should only be subjected to tax but excess of premiums paid.
This would be applicable to all insurance contracts. Therefore, an
insurance account will be comprised of an escrow fund . "Accumulated
premiums paid" would act as a contra-account to the operating portion
which taxable disbursements are to be made from as claims are paid.

**The tax base**

##### 

The required tax base for the WTX is simply the tax rate divided by into
total of budgeted government expenditures. If the rate were three
percent for the federal government's share, the base of taxable
withdrawals must equal \$43 trillion. Based on Federal Reserve
statistics, the total of all cash flow, including deposits as well as
withdrawals flowing through the banking system is \$422 trillion
annually. This excludes securities firms and insurance companies.
Therefore, if the total cash flow were allocated at least half to
withdrawals, then The WTX would generate \$6.3 trillion. This caused us
to think our proposed rate was excessive. Nevertheless, at a five
percent rate, we can safely assume the system will cover all
governmental revenue needs. This leaves us a great deal of leeway in the
items we choose to include or exclude from the base.

The tax base is modeled from three groups, individuals, business
entities and general title transferors. The items included and excluded
were based on at time on the practical and political needs of government
and the taxpayer in order to facilitate the implementation of the system
and not always grounded in strict economic principle.

##### 

##### Individuals, trusts and estates

The tax base derived for individuals would be inherently different than
a commercial enterprise. Individuals would pay tax as they withdrew or
transferred cash or a cash equivalent from their accounts for any
purpose[^8].

Individual transactions subject to the WTX include the following:

-   Check withdrawals

-   ATM or Cash withdrawals of any kind from checking or savings
    accounts

-   Inter-bank transfers or wires of money directed by an individual for
    ***any*** purpose[^9]

-   Title transfers by gift at fair market value [^10]

-   Transfer of an estate at death at fair market value

-   Distributions from trusts in cash

-   Distributions of property from trusts and estates at fair market
    value

-   Check cashing

Individual\'s transactions not subject to tax would be:

-   Credit card purchases

-   Cash advances

-   Use of credit lines

-   Disbursement of mortgage proceeds

-   Transfers to similarly titled accounts (rollovers)

-   Transfers to trusts

-   Transfers of cash and property to controlled entities

[Commercial enterprises]{.underline}

The tax base derived for business entities is more problematic but it is
intentionally designed to be simple to avoid any exceptions to certain
businesses and cause inequities.

The following would be subject to tax at the source:

-   All business operating expenditures made in cash or by cash
    equivalent

-   All transfers of cash or cash equivalents that are not rollovers

-   Payments of all dividends

-   Retirement of debt paid in cash or cash equivalents

-   Boot paid

The following corporate transactions not subject to tax:

-   Transfers of cash or property to a wholly owned subsidiary

-   Rollovers of cash to similarly titled accounts

-   Disbursement of bond proceeds

-   Disbursements from credit line

-   Letters of credit

The nature and complexity of business transactions creates allocation
problems, but none of these problems are less workable in the WTX system
than are those of the income and sales tax systems. It is possible for
businesses to avoid the tax by shifting the burden[^11] and measures are
expected to counter unforeseen situations.

[Title transfers and non-cash transfers]{.underline}

Since transfers of title for any purpose can be effected without
liquidation, this aspect of wealth transfer can escape the tax.
Accordingly, we propose to generally tax current title transfers at fair
market value. To do this we would merely subject the transaction to tax
upon legal recordation of title. The tax would be drawn from the account
by debit advice.

We may want to limit the tax on only those large items such as real
estate, vessels and vehicles. However, property rights that are hidden
in disguised powers of appointment, exercise of options and reversionary
interests may present a problem. For this reason we would not want to
dismantle the theoretical principles of estate and gift taxation as it
stands. We propose that the structure remains but the tax would be the
WTX rate. We do not foresee any exemptions or lifetime credits in the
application of the WTX to estates and gifts.

[Controlled entities and estates and trusts]{.underline}

The question of taxing title transfers is compounded by our approach to
taxing corporate reorganizations and liquidations under the WTX. The
problem stems from a taxpayer's transfer of non-cash assets to a
corporation, partnership or trust, essentially, the non-cash
capitalization of a business. Since cash withdrawals made for investment
and gift like transfers are taxed under the WTX, we cannot ignore these
types of transfers.

Under the WTX, we propose to exempt capitalization of a controlled
entity as under current income tax rules[^12]. This justifies fully
taxing liquidation and dividends at their source. This would effectively
subsidize entrepreneurial pursuits, as well as encourage the use of
trusts for more practical purposes. By taxing liquidations and
distributions we get the same effect and broaden the "asset transfer"
tax base while not compromising the focus of the WTX.

##### Corporate reorganizations

Generally, under current income tax law, reorganizations and similarly
based swaps of value where there is a continuity of interest, are tax
free until boot (essentially a cash equivalent) is effectively extracted
from the deal[^13]. In such cases, the taxation method would be the same
except the rate would be at five percent of the boot.

Stock for stock transfers would be tax free because such transactions
are merely restructuring of equity ownership. Owners that sell the
stock, will eventually be taxed upon the investment of the cash or when
cash is drawn from their securities account.

A stock for assets transfer is essentially a purchase of assets where
stock is used instead of cash to acquire assets. It is tax free under
current income tax law if substantially all of the assets of a target
corporation are acquired. All other such acquisitions of assets using
stock are taxable events under income tax law. We may wish to subject
the latter transactions to the WTX if in substance the transfer is a
cash equivalent transaction. However, taxing complete corporate
acquisitions would have some consequences. While we do not feel that
taxing a stock-for-assets reorganization would be detrimental to the
corporate acquisition process, we believe the foregone revenue is minor.
We would allay any conclusion on this to another paper.

##### Corporate liquidations and dissolution

Under current income tax law, the liquidation of a corporation results
in a taxable event unless there is a liquidation of a subsidiary into a
parent corporation[^14]. Liquidation occurs upon the transfer of
corporate assets, including cash, to the shareholder in complete
satisfaction of his interest. In substance, the transfer of assets is in
lieu of cash. Under the WTX this would also be a taxable event to the
corporation. The tax payment itself would not be subject to the WTX.
Inasmuch as such title transfers would be subject to the tax, it seems
logical to tax the transfers of assets to shareholders as a cash
equivalent. Entity dissolution would be identical.

[Commodities and arbitrage accounts.]{.underline}

The problematic aspect of title transfers, are the small valuable
commodities such as diamonds, gold, artwork and foreign currencies where
a legal title process is not used. This may give rise to barter and
substitute currencies. However, we do not believe that substantial
tracking in these commodities or any other commodity will be significant
enough to compromise the effectiveness of the tax or its overall
fairness. Commodity exchange and arbitrage accounts however, would be
considered a financial intermediary [^15]. Trading would ultimately be
taxed on liquidation from the account but transfers to the account would
not be subject to tax.

## Other Features

# Allocation of collected revenue and funding social security

Revenues collected under the WTX will be allocated by formula. The
allocation of revenue to specific governmental units or programs is a
function of the number of governmental units and programs that
legislators include in the system. The following is a rather broad
allocation of tax revenue:

-   Budgeted federal government expenditures

-   Budgeted state and local government expenditures

-   Projected Social Security and Medicare Payments

The parting of the income tax will dismantle the social security
reporting mechanism or at least it should. The WTX should generate
enough revenue for social insurance contributions. A WTX tax rate could
be established that might generate all of the needed revenue. Social
security benefits could be divorced from earnings in much the same way
that Medicare is already. The amount contributed to a fund could be
fixed, thus guaranteeing benefits for all citizens. Alternatively, if
the stream of revenue collected within this system is sufficient, the
trust fund could be aborted in favor of annual budgeting of social
insurance payments.

The fund, as it stands, may be utilized to offset the national debt or
serve as a reserve fund for expansionist programs. The potential in such
a radical change in policy is enormous. In a global economy, the country
that is able to invest in technological advances will achieve and
maintain its position of power in the fraternity of industrial nations.
The country that stifles such growth with counterproductive taxation
systems will be left behind.

The following is an allocation of government receipts not including
State tax receipts:

[1994 Federal Government Receipts:]{.underline}

Personal income tax 39.54%

Corporate income tax 11.95%

Social Insurance 40.57%

Other 07.94%

### 

### Equity as the utilitarian tax base

We believe that taxation is firmly a function of the classic accounting
equation, Assets = Liabilities + Equity. A tax, in whatever form, is
substantively an extraction of equity, regardless of how that equity is
acquired and whether the entity is a business or an individual or estate
or trust. The rate of equity accumulation, how it is effectively
measured and how and when a tax is taken from that equity are key
variables in our model.

Under the income tax, an individual or a business entity is taxed at the
point where economic gains are realized and the taxpayer theoretically
has received enough cash to pay the tax. Essentially the tax wedge is
driven on the realization of the cash portion of the accumulated income
component of taxpayer equity. Income tax rates are then progressively
applied to the larger equity accumulations, thus penalizing successful
investors and lessening the pool of capital for new investments and the
potential income therefrom. This effectively restricts growth in the
equity tax base that successful entities can achieve by the amount of
the foregone income. This is killing the goose that laid the most golden
eggs.

There is no stark revelation in the aforementioned observation. However,
if a tax could be applied evenly and as a constant at the point of
investment, the tax would always be recovered in the investment return
and have the same effect as any cost of capital. If this were the case,
the constant tax rate would eventually become indifferent to all
investors and reach a state of equilibrium.

We hypothesize that if the rate at which equity is accumulated and is
higher than the tax rate, the tax base will continually grow. The idea
is to place the constant tax wedge into a broad base that will
theoretically always grow at a rate higher than the tax. This would make
it unique from the income tax because income tax rates are generally
higher than most pretax returns on equity. Currently, the tax base only
grows in periods of economic boom under the WTX continuous growth can be
assured.

The difference in the growth pattern of equity when tax is eliminated or
substantially deferred is demonstrated conceptually by the "pension" or
IRA account where the tax is back loaded[^16]. Utility will be reached
if the WTX model can achieve IRA type growth in the general tax base
while extracting a thinner blanket of needed tax revenue from an
infinitely expanding base. Conceptually, by evenly applying a level rate
of tax only to withdrawals, we allow the equity tax base to flourish at
a faster rate and across all socioeconomic classes. The tax is largely
absorbed by the marginal growth in the base because it is built into the
investor's future return on equity as discussed below.

**The Investment efficiency of taxing only withdrawals**

First, some economists would argue that it would be more efficient to
tax all bank transactions, thus all cash flows (deposits as well as
withdrawals). Their rationale is to make investors indifferent to the
tax on both sides of a business negotiation. However, we do not believe
that an equilibrium state can be achieved if this were the case.
Logically, when it comes down to who will shoulder the tax burden in a
given economic transaction, there has to be a loser. We believe that by
not taxing bank credits largely removes that motivational element which
causes parties in business transactions to volley the tax burden. This
will occur even if the purchaser feels the tax was discounted from the
purchase price. By always placing the buyer in a taxpaying situation,
via inclusion of the tax within the purchase, this problem is solved.

Secondly, when a return on assets is realized under the WTX the entire
return is added to equity. The tax is effectively equalized in the
investment function and current income and the coincident real return on
investment is not affected by taxation. This is because the expended tax
is returned to the investor on realization of the investment return.
Logically, this continually increases the taxpayer's pool of investable
assets and naturally feeds economic growth, as well as the WTX base.

By taxing almost all non-debt generated cash outflows, a uniform
standard cost to capital use is created. If it is consistently applied
without exception or prejudice to all such transactions, equilibrium
will be reached for equalizing the tax effect in all similar
transactions. Once that equilibrium is reached, the dynamics of capital
production will not be affected by the tax, until the rates are changed
over the short run.

It is important to note that the power to regulate the tax rate itself
provides a sledgehammer effect fiscal tool for the government [^17].
This new cost of capital directly controllable by the government would
be a more powerful tool than federal reserve policy. This may be
troubling when tax policy interacts at cross-purposes with federal
reserve policy. However, we think they can easily coexist or
counterbalance one another. It may also be advisable to have tax rates
and interest rates move in coinciding directions. This is the subject
for another paper.

**Taxpayer acceptance and visibility in the banking system**

Taxpayer acceptance of the tax collection mechanism is essential for the
overall success of the system. Taxpayers want a simple and more visible
tax collection system that avoids the draconian collection practices.
Taxpayers will always favorably respond to that. Our banking system
provides us with the keys to achieving this goal. The worldwide network
of financial intermediaries has become one of the most reliable and
essential elements in transacting business in our socioeconomic system.
Technologies now used in banking, such as on line banking and ATMs, are
now widely accepted by the general public; even in third world nations.
Electronic banking is now an ever-growing part of the current income tax
collection process. The domestic banking system of any country, by
necessity, will become more indispensable as both the global economic
community and computer technology develops. Its role in tax collection
is unavoidable.

The banking environment provides the WTX with higher visibility than any
other tax system we observed. This is so because the tax is fixed into
almost every banking transaction and reported on the bank statement. It
also provides us with reliable analytical devices that are not
politically manipulative to examine the true bearers of the tax burden.
Nevertheless, we predict that the introduction of the WTX system will
initially meet with anxiety and trepidation. However, after a short
period of adjustment, when the realization of the freedom from tax
reporting sets in, a high level of acceptance rate is predicted. We have
not surveyed this aspect of the model because a prototype and a
methodology for empirical analysis have not yet been fully developed.
This will be the subject of a poll and follow up paper.

Finally, the banking system provides us with two more elements of
utility. These are certainty and accountability. Certainty in that the
tax is literally unavoidable because it is always capable of being paid
when a withdrawal is made. Accountability, in providing an audit trail
for the taxes paid. These elements add to the credibility of the system
insofar as taxpayers are being assured that there are no other taxpayers
avoiding taxation. This cannot be achieved with such preciseness in any
other system.

**Revenue generation**

We have assumed the tax base can be approximated into a workable model
using banking and economic statistics but we can only speculate on the
tax rate of five percent to provide revenue neutral transition. We
cannot be certain of the exact rate of tax without a more detailed
analysis of some inaccessible databases. However, as markets adjust to
the new taxation system during a well-planned out transition phase, the
rate can be adjusted up or down at any time to meet the revenue needs of
the government.

**The currency issue**

The first reaction people have to the WTX is that it won't work because
people will just hoard money or use a substitute currency to avoid
flowing any cash through a financial intermediary. Clearly, a
large-scale underground currency exchange would compromise the system as
it does with present systems. We have developed a solution to this
problem (see appendix A). We would rather focus your attention on the
future where all cash transfers outside electronically controlled
parameters are no longer viable and the use of substitute currencies was
simply outlawed, perhaps globally. While this may be a naïve notion we
need to assume it into the model for now. In the not so distant future,
we can at least presume that almost all cash will be spent using debit
cards, credit cards and other electronic transfer devices perhaps not
yet discovered. People will be able to buy refillable cash credit cards
at ATMs. In short currency, as we know it, will eventually fade away to
be replaced by another anonymous electronic exchange medium[^18]. Our
study presumes the inevitable elimination of cash/currency from our
economic system or at least a significantly changed method of
utilization in the next century.

**Debt financing**

There are two reasons for exempting borrowed proceeds from the WTX.
First, limiting tax collection to certain financial intermediaries is
just a simpler and more efficient control structure. Most people and
businesses have only a few accounts and localizing tax collection among
the accounts provides higher visibility and a reliable audit trail. To
do otherwise would subject a wider number of institutions like credit
card companies and private mortgage lenders to assume the tasks of
collection. This would be naturally problematic. The second reason for
not taxing debt proceeds is to protect the capital markets and keep
leverage strategies and consumer credit attractive by delaying but not
avoiding taxation.

By subjecting all debt retirements to the WTX, we are taxing 100% of the
consumption of debt proceeds over the term of the loan. This appears to
be at odds with our theoretical premise of taxing equity. This does not
move us of from the equity premise under our present system; consumption
of debt proceeds is subjected to sales and excise taxes, therefore, the
WTX, is in fact, taxing that consumption, only collecting it
differently.

In addition, the taxpayer has the choice to use debt or equity for a
disbursement. If he uses debt, his cost of capital is spread over the
term of the debt. In order for one to retire all of his debt, a
*defacto* liquidation process must be effected. It is assumed that his
equity is going first to retire debt. We don't see this as unfair since
refinancing debt and maintaining debt indefinitely escapes tax in the
short term.

Under our current system, debt financing is subsidized by an interest
deduction and the tax benefit is traditionally part of the basic
strategy of finance. If the advantageous interest deduction was lost,
the deferred tax on the initial financing under the WTX will keep debt
financing attractive, albeit from a different perspective. In fact, debt
will be a more attractive means of financing under the WTX. The tax
deferral will result in a more rapid expansion of the equity tax base by
accelerating investment return due to a lower cost of capital.

**Taxing consumption**

In our current system of taxation we pay sales and excise taxes largely
with after tax revenue. The point of collection on consumption tax is at
the vendor level. This is what makes sales taxes inefficient [^19]. The
WTX taxes consumption at the bank level eliminating the need for vendor
collector reporting and remittance[^20].

Under the WTX, the tax base is expanded to all sales regardless of who
is the end user. The effect of this could distort prices at all levels
and markets where the cascading of this tax is a concern. It could
initially burden manufacturing where assembled products are acquired by
outsourcing and force vertical integration. Nevertheless, as the tax
takes hold over a period of transition, efficiencies will by necessity
develop for manufacturers to compete in domestic markets. This is part
of the business restructuring we noted.

# Foreign markets and VAT taxes

There is concern that foreign countries, that use a different tax
system, may be able to gain an advantage in pricing their goods because
their manufactured products will exclude the tax and any cascading that
we tolerate. Border adjustments to imported goods may be necessary to
counteract this but we cannot speculate on rates at this time. However,
we point out the goods exported from VAT nations must contain an element
of taxation as well and the related compliance cost. Countries that use
a VAT tax require a substantial reporting and tracking mechanism, the
cost of which must rest in the price of their goods. Because the WTX has
no compliance cost, this element is effectively excluded from the pure
domestic goods produced under the WTX. Even if countries that wish to
counteract the negative effect of VAT taxes and exempt exported goods
from the VAT tax to counter border adjustments the element of compliance
cost cannot be removed.

Hypothetically, the ability to exempt exports from the effect of the WTX
exists. The methodology of this tactic would have to be a function of
the need for competitive pricing in certain overseas markets and the
condition of the trade surplus or deficit. A possible methodology would
be to allow manufacturers that are adversely affected to be directly
subsidized by applying for a credit much the same way a VAT tax is
calculated along the production process. We are not in favor of this
because the compliance cost of application and the bureaucracy that will
grow around the process will become unwieldy and counterproductive to
the goals we wish to achieve. We note the availability of such measures
to counteract foreign gimmickry but only to show the versatility of the
WTX to meet such a challenge.

**Cascading**

Cascading refers to the repeated taxation of the same items as they are
sold and resold at successive stages of production causing the ultimate
price of the completed product to include all the taxes paid in the
stages of production and the related costs of sales and administration.
Sales, excise and property taxes cascade and we haven't sent the world
into turmoil yet. In reality, all taxes paid by business cascade into
the price of goods. However, this problem is more controllable with the
WTX. First we are eliminating all sales and excise taxes at rates that
are generally higher than the WTX[^21]. Secondly, it is materials and
overhead as production costs that contain the cascade multiples.
However, direct labor is excluded from cascading because it is paid only
once during the production process and includes only one WTX hit.
Assuming the sales tax rate was 8% and a portion of the components of
production carried excise taxes at 14% and 18%, the elements of the
current tax that cascade on these rates, more negatively impacts
production than if we had a flat cascading tax of 5%. It is difficult to
accurately calculate the negative impact of the cascading effect of
current taxes but it will be more measurable if the tax rate were
constant, as with the WTX. We agree that this is concern but one that
can be managed with tax credits or other subsidies.

# Vertical Integration

Essentially, each industry will adjust its production processes to
minimize cascading and vertically integrate. Generally, this is less
efficient and deals a disadvantage to small businesses that cannot make
the change. We tend to disagree on that point. Some businesses will
vertically integrate because they have the resources and some will fall
by the wayside because they cannot, but there are costly disadvantages
that beset the larger companies seeking that advantage. The key
equalized in the process may be higher union labor costs due to
company-wide unionization in vertically integrated companies. While
vertical integration is a concern, it is not restrictive to the WTX.

# 

# Progressive application

The WTX is indirectly progressive, because higher taxes are paid by the
more affluent consumers. However, the tax may be made directly
progressive. For disadvantaged individuals, the WTX could accommodate a
welfare element. For example, annually, all individuals would be given a
credit to be used until accumulated withdrawals exceeded a particular
amount. This will allow such individuals to avoid the tax on the
disbursement of funds at least to a point, say \$30,000. All individuals
will be entitled to the initial credit, however, high spenders will give
back the credit at some level of spending, say between \$50,000 --
80,000 by using a higher temporary rate of tax. This feature could be
easily added to provide the progressive structure lawmakers wished to
achieve.

# Implications on the banking system

In order to collect the tax, the banking community must fully cooperate.
The massive accounting system in use by the banking community is
essential and may have to be standardized or a clearing-house system may
have to be set up[^22]. This would, by necessity, be tied into the
Federal Reserve System. The banking system will be a source of enormous
savings to the government as well as the taxpayer in collection
expense[^23]. However, the greater issue is how to report , control and
audit the tax debits made to the taxpayer\'s account. This forces the
banking system to control the process but with a fair amount of
governmental control and intervention. This may be problematic in that
we must decide who runs the computers, the bank or the government? In
addition, how does the bank pay its taxes?

We considered that because banks enter into the system so prominently
that they remain the only entities subject to income tax. The rationale
behind this is twofold. First to treat lending institutions differently
will allow for interest rate regulation to be maintained. Secondly, the
tax audit function would be confined to one type of institution.
However, on the other hand, using the same WTX principles we can treat
bank deposits as debt. Loans and mortgages made from that base would
then not be subject to the WTX. Taxing the disbursement of interest and
all other bank disbursements would be the same as any other entity under
the WTX. We are not making a determination on this point, just
presenting the alternatives. In depth studies of bank statistics must be
undertaken.

## 

**Impact on the business community**

[Benefits]{.underline}

The present system mandates that business firms by self-assessment on
profits and withholding from employees incur substantial tax collection
expense. Such cost would be radically removed from many firms and
imposed on a few concentrated financial institutions where it would be
more identifiable and appropriate reimbursement feasible. To minimize a
firm\'s own tax, it must reduce expenditures to accomplish its profit
objective. Efficiency would be encouraged. An income tax penalizes the
efficient, and rewards peripheral spending that becomes deductible in
that system.

Compliance issues as to the measurement of income, the tax year of
occurrence and deductibility of expense would no longer be relevant to
business decisions. The accounting profession would continue its role in
financial measurements to monitor management performance. The
reorientation of business may permanently resolve issues of deferred
income taxes, employee benefit costs and other items. Cost calculations
by managerial accountants would remain a viable function.

[Disadvantages]{.underline}

Capital and financial investing would be taxed. The increased recovered
untaxed future profits may offset the higher initial outlay. Financial
institutions and capital intensive firms may experience tax increases.
Corporate profit taxes are already included in customer prices and so
would a disbursement tax. The resulting realignment of prices would
establish more equitable price messages for consumers to make decisions.

Start up costs for new ventures would be hampered by the up front
taxation. Existing firms might be unwilling to undertake risky ventures
because failures will not reduce their tax. Financial institutions may
come under greater control of the government as their participation
enhances. Potentially the government could become owners of all banking
enterprises.

[Distribution of corporate earnings]{.underline}

Dividend payments by corporations might be curtailed, but since such
payments are tied to stock prices, we believe the WTX will have little
impact on dividends. Corporations gain no advantage to deferring
dividends except maybe interest on their bank balances because they
could not benefit by alternate spending. However, dividends distributed
in the form of stock may increase.

[Using corporate annual reports to determine cash
disbursements]{.underline}

Current income tax payments are sometimes reported separately on the
cash flow statements. Using the income statement and the change in
deferred taxes is an alternative; we can compare the current tax
provision to what a corporation would likely pay under the tax model.
(See schedule below).

Revenue less positive or add negative cash flow from operations plus
gross payouts from investing and financing activities was used to
estimate total disbursements. The income tax provision identified on the
income statement was computed as a percentage of the implied
disbursements. Intra-period tax allocations to extraordinary items and
the applicable tax were not identified by any of the companies.

[Cash flows and the WTX]{.underline}

  ------------------------- ----------------------- ----------------------- ----------------------- -------------------------
                            **[IBM]{.underline}**   **[GTE]{.underline}**   **[Baker                **[Chase]{.underline}**
                                                                            Hughes]{.underline}**   

  Revenue                   75,947                  21,339                  3,028                   27,421

  Less: Cash from           10,275                  5,899                   195                     \(983\)
  operations                                                                                        

  Subtotal                  65,672                  15,440                  2,833                   28,404

  Cash from investing       8,507                   4,614                   215                     117,426

  Cash from financing       11,622                  4,099                   196                     4,922

  Subtotal                  85,801                  24,153                  3,245                   150,752

  Income taxes paid         2,229                   1,325                   247                     1,650

  Net disbursements         83,572                  22,828                  2,998                   149,102

  Provision for taxes       3,158                   1,614                   133                     1,350

  Percent of net            3.78%                   7.07%                   4.20%                   0.91%
  disbursements                                                                                     
  ------------------------- ----------------------- ----------------------- ----------------------- -------------------------

Four companies do not tell much, but it does indicate that Chase Bank
does have a an unusually lower income tax rate than the others. If the
tax on withdrawals were greater than .91percent then the withdrawals tax
would be much higher for the financial institution. However, if the
withdrawal tax rate of less than 3.5 percent will be a benefit to the
industry based company. This dynamic must be further explored because
banks show trading transactions net and there is no way to determine
loan or deposit related disbursements. A more detailed study we believe
will show financial institutions may actually be more seriously impacted
by the tax.

**Political & Governmental Implications**

[Advantages]{.underline}

The cost of monitoring collections would be sharply reduced. The current
Internal Revenue Service focus on employee/subcontracting issues, tip
reporting and the underground economy become meaningless under our
model. How income is earned fades away and it is spending that
establishes the liability. The processing of income documents like
W-2\'s and 1099\'s will no longer be needed. The social security
recording of earnings could cease.

With such a system, it is possible to reduce governmental interest costs
by immediately paying down short-term governmental debt with each days
tax receipts. The interest savings on such a cash management device
cannot be estimated at this time but we believe it can be substantial.
Ultimately it must be figured into the model.

In Arlington, Virginia, automated taxpaying services have been in use
for over twenty years. The banking assisted collection program was borne
out of necessity due to manpower considerations and a pledge to simplify
the process. Citizen enthusiasm for the program caused the county
treasurer to rethink similarly proposed collection schemes.

[Disadvantages]{.underline}

There would be significant reduction in government employment of persons
unskilled for work in the private sector. Usable skills in the private
sector would be changing as well. Unemployables with educational
credentials could temporarily expand. Criminal activities would alter
from theft of money to sophisticated computer crimes. Computer security
problems would definitely intensify. The police function of government
would become more concerned with information age issues.

[State and local tax issues]{.underline}

If all disbursements were taxed, then payments of state income and local
real property taxes would be subject to the proposed tax. Many state
income tax programs depend upon the existence of the federal system.
Without a federal income tax program, state costs of enforcement would
become prohibitive. Participation in the federal initiatives may be
imperative. This raises issues of allocation. Varying disbursement tax
rates by each state would be impractical. The locus of a transaction
across state boundaries processed by a remote computer would create
impossible situations.

**Tactics for evasion**

[Offshore transactions]{.underline}

There is a myriad of offshore tax evasion schemes. The WTX will be no
exception. However, conceptually, we approach the issue first from the
viewpoint of a domestic corporation doing business globally. Assumedly,
funds expatriated for any reason will be subject to the WTX. Funds
repatriated are not at issue because they are eventually taxed. However,
this deviates from our approach to non-taxable transfers to controlled
groups and does involve an additional tax.

Goods shipped to the USA from foreign countries could be bartered on a
grandiose scale and that would cause significant loss of revenue.
Accordingly, notwithstanding border adjustments, proof of cash payment
verifying payment of the WTX would have to be presented upon unloading
imported goods. If such proof of payment cannot be verified, a tax will
be assessed at that time to the receiving corporation of the other
business entity.

Assume now the company was a foreign company doing business in USA. The
same rules would apply. Therefore, all foreign recipients receiving
goods on American soil will pay the tax on imports of their inventories.

Expatriation of any funds to a foreign parent would likewise be subject
to the WTX.

###### Barter

Pure barter transactions of individuals would be very difficult to
detect and enforce but it is not expected to materially affect the
utility of the tax. The income effect of these barter transactions is no
doubt escaping the scrutiny of the tax collector today and this offsets
the tax evaded by non-reported cash based income as well. Essentially,
formal bartering in businesses would be outlawed but some audit control
mechanisms could be formulated to enforce the law. However, barter on a
small scale under the WTX should not compromise the system.

[Assignment]{.underline}

Assignment of disbursements to a third party would allow for a person to
avoid the WTX. Business practices of buying and then reselling goods at
the non-consumer level would probably change. Instead of a wholesaler
buying goods from a manufacturer and reselling to a retailer, a new
arrangement would probably arise. The retailer would pay the
manufacturer direct and pay a brokerage fee to the wholesaler. This
would reduce the volume disbursements as compared to current business
practices. Health insurance entities making direct payments to providers
are already establishing these procedures.

**Implementation**

If the WTX was to be implemented, it would have to be accomplished in
stages. The first stage would be to subject people to the collection
mechanism. This means collecting the tax based on withdrawals from a
taxpayer\'s account. Conceivably, our withholding system can be replaced
by the WTX collection system. Conceivably, a taxpayer could file his
income tax return using the tax paid through the WTX collection system
as a credit.

At a second stage of implementation, the taxpayer could be given the
choice, of either to file a tax return under the old income tax law or
allow the government to keep what was assessed on withdrawals. This
implementation scheme can only be instituted for the income tax
component and may or may not initially include the States. This
transition period should last 5-10 years.

The next stage of implementation would be to include the estate and gift
tax component. This can be accomplished by requiring taxpayers to
accumulate their respective estates and file an estate tax return on a
specified transition date. The dollar amount of the estate tax due under
the old rules would be due, but the tax would be collected upon actual
death of the taxpayer. At the time of death, the WTX would be collected
on the excess of the actual estate at death less the estate filed on the
transition date. If the taxpayer was exempted from estate tax because of
the exclusion he would be taxed on the WTX over the amount of the
applicable exclusion at the time he filed a transitional estate return.

Finally, full implementation would follow, tempered by experience along
the way. The best time to do this is during a period of projected
surplus. Alas, the inclusion of social insurance would have to be
decided upon during the transition. The system has to be seriously
overhauled with the deliberation of a change in the tax system. If the
WTX is adopted as modeled social insurance would be transfigured into
constant old age benefit, thus eliminating the need to account for
participant benefits. The logical progression is that the current system
be privatized while a new WTX system picks up after. This may be moot if
privatization of social insurance achieves the goals of rescuing the
current system.

**Conclusion**

In 1897, Edgeworth adopted a utilitarian welfare perspective in which he
concluded that incomes should be neutralized with progressive tax rates.
In modern times, tax systems have taken that fundamental premise to
extremes. Any system of taxation that does not have a progressive rate
structure as a basic tenant is labeled as unfair and not worthy of the
maximum utility classification. However, others have challenged this
perspective. Vickrey, in the 1940s dealt with the progressive tax
schedule and reformulated an inherent problem. He noted that incentive
problems take hold in such systems that cause individuals to exert
themselves or chose their work effort in conjunction with their tax
schedule. He emphasized that the, potential productivity of individuals,
is not generally known to the government and this creates a dilemma in
formulating a utilitarian tax system.

In the 1960s, Mirrlees developed a general \"revelation principle\" as a
solution to incentive problems. He noted that allocation mechanisms are
at work to induce individuals to reveal private information in a way
that does not conflict with their self-interest. He surmised that this
makes it easier to design optimal solutions to problematic systems like
the income tax. In these works two things appear certain: a) income tax
systems present inherent dilemmas in social structure, productivity and
coincident growth and b) progressivism in tax rates is not essential to
a fair tax system, but relevant at times.

The income tax system in the United States and in other industrialized
nations is an extremely effective control mechanism for government to
manage the economy, as well as control the general population in various
ways. Sabrin has suggested alarmingly that the income tax system is a
form of creeping \"Statism\"[^24]. The magnitude of this concept could
not have been comprehended in the 18^th^ Century when Edgeworth
formulated his progressive tax structure. Statism may in fact be more of
a threat to social well being than equalized tax rates.

We have been taxing income in one form or another from the Civil War
period. Then it was largely viewed as a necessary evil to raise revenue
to support the war effort, but almost all unilaterally detested it and
tried to evade it during its tenure. Later, industrialization made
taxing incomes to be the most practical means of raising revenue in an
industrialized economy, but today, over 100 years later, society and the
world has changed. The income tax has now become privacy invasive,
cumbersome to collect and perhaps obsolete for a global marketplace. In
fact, we believe that taxation of incomes has more downside risks for
the future of global society than any other socioeconomic or political
force that we have ever known.

It would appear that Mirrlees observations regarding incentive problems
are more relevant today because disclosure in electronic transactions
has become prone to abuses by government as well as business. The amount
and type of information that one must disclose in routine transactions
involving credit purchases and debit card transactions leaves an audit
trail that can be used for cross purposes.

The WTX, with its faults, is a better system of taxation. Better because
it maintains the motivation for a society's efforts in the proper
direction; the creation of wealth and prosperity. Under the WTX, we will
no longer penalize productivity, profitability and entrepreneurship. The
focus of taxation will be on a modest and reasonable extraction of
wealth to operate the government.

The concept of taxation of disbursements opens up a myriad of serious
tangential matters, some of which will be dealt with and others require
more intense research. Inevitably, the fundamental processes of
democracy itself must be dealt with if we are to effect a tax system
change. The WTX will undoubtedly transform capitalism much the same way
that mercantilism was transformed into modern day capitalism by the
industrial revolution with the focal point being the government\'s role
in the economic process. The resources the government needs will now
become a high profile factor perhaps causing us to rethink government's
power to tax. In the final analysis, we think it will perfect the
democracy experiment by simplifying public finance processes. If the
means to extract the tax becomes much less expensive, the amount of
resources the government collects and the purpose for which it collects
it becomes more clear. Government's utilization of the tax system to
control the economy and its need to do so becomes a more open debate and
this can only lead to a better life for all of us.

\* \* \*

**Appendix A**

**Perishable Currency**

Undoubtedly, the hoarding of cash would appear to compromise the WTX
system. Actually, currency transactions are less than three percent of
total transaction[^25]. Nevertheless, a change in the tax system that
taxed currency turnover would naturally result in avoidance techniques.
Currency hoarding and substitute currencies are therefore an issue.

The currency system can be redesigned to accommodate the WTX and counter
the negative effects of hoarding and underground commerce. Conceptually,
it would operate in much the same manner as currency does now, except
that currency would have to be recycled within a specified time period.
Failure to do so would make currency non-negotiable but not necessarily,
non-redeemable.

It would operate in the following manner:

-   All currency would be redesigned to include a magnetic strip and an
    area where a printable date may be inserted.

-   As currency was withdrawn, it would be electronically encoded with
    its source account, which is the taxpayer\'s account number, and an
    expiration date. The date of expiration would be the date by which
    that bearer note would have to be recycled to avoid lapsing into
    non-redeemable status.

-   To recycle the currency, it could either be run through an ATM or
    through a bank teller\'s window. At that juncture, the WTX would be
    withdrawn and updated currency, net of the tax, would be issued.

-   Taxpayers that redeposit the same bearer notes that were issued from
    their account could recycle them with no coincident WTX.

-   Notes that expire could be presented to the bank for redemption but
    only within a specified time period for doing so and for limited
    amounts each time. The purpose of this is to allow people the use
    cash and a certain amount of tax-free turnover. Taxpayers, that
    inadvertently allow currency generated by their account to lapse,
    are given the second chance to redeem the notes without incurring
    WTX. This feature would make larger redemptions visible thus
    unveiling money laundering and underground activity. With taxpayers
    having the ability to recycle cash at five percent, illegal payments
    would likely be processed through an ATM long before the currency
    became non-negotiable. Overall, this would effectively tax the
    underground economy, which is largely escaping taxation now.

-   Major retailers would have the ability to recycle their customer's
    cash through their account as a convenience or supply ATM for
    customers to do this at their establishments.

-   Cash used to make change would be affected with non-recycled
    currency in much the same manner as it is now. However, closer
    inspection of negotiable currency may make the system somewhat
    cumbersome. Retailers would have the computer capability to verify
    negotiable currency quickly. We believe that it would be a welcomed
    device because it removes the problem of counterfeit currency.

-   Coinage would remain the same and not be subject to the WTX.

-   Finally, the use of foreign currencies would have to be made
    illegal, unless a complementary international system was developed.

The institution of perishable currency would be to make the WTX more
viable but retail commerce in the future is likely to exclude currency
transactions. The system of perishable currency can effectively tax the
underground economy by default. The revenue captured rather anonymously
would serve to both keep the tax rates low and flush out illegal
activity. The fact that income is no longer taxable unless it is run
through a bank is a powerful incentive to avoid the system. We do not
believe that this will be a long-term issue. However, perishable
currency is one possible solution to currency hoarding.

**References:**

Francis Isidro Edgeworth. - *An essay on the Application of mathematics
to Moral Sciences, 1881*

S M Stiller, - *The History of Statistics. The Measurement of
Uncertainty before 1900(* Cambridge,

Mass- London, 1986), 305

MG Kendall, Francis Isidro Edgeworth, 1845-1926, *Biometrka* (1968)
269-275

Dick Artney , Richard Shelby *The Freedom and Fairness Restoration Act*
March 1997

*EU Report on Consumption Taxes -* Vol 2 summer 1996 ISSN 0948-3241

Murray Sabrin. *Time to Redeclare our Independence 1996*

Daniel Slesnick *Carbon Taxes and Economic Welfare*

*Automated Taxpayer Service,* Government Finance Review April 1990

D.R Burton & D. R . Mastromarco - *Emancipating America from the Income
tax*

Lawrence Kotlicoff -*The Economic Impact of Replacing Federal Income
Taxes With a Sales Tax*

David Bradford - U.S. Dept of the Treasury - *Blueprint for basic Tax
reform*

*H. R. 1039, The National Retail Sales Tax Act of 1996*

Arthur Hall - *The High Cost of Tax Compliance for U.S. Business and
Compliance Cost of Alternative Systems*

Peter S Spiro - *Estimating the Underground Economy*

Bruce Bartlett - *Replacing Federal Taxes With a Sales tax*

David G Raboy - *International Implications value Added Taxes*

Halifax Initiative *- Background of the Tobin Tax -* Janet G. Stotsky

Mahab Ul Haq, Inge Kaul & Isabelle Grunberg - *The Tobin Tax -* Oxford
General Catalogue

[^1]: **Cashless taxation in the 21^st^ Century, Colabella &
    Coppinger1995**

[^2]: **The Debit tax is a state administered tax in Queensland,
    Australia, Leonard Crisp, the Tobin tax 1996,**

    **National Retail Sales Tax NRST, Bill Archer et al**

[^3]: **The States would set their own rate for official residents.
    Corporations doing business in multiple venues, would**

    **report on an annually adjusted apportionment factor basis in order
    for states to share revenue.**

[^4]: **Form 1099B is used in all real estate transfers. This system
    could be expanded to other applicable title transfers.**

[^5]: **Generally accepted accounting principles (GAAP) is the only
    means of measurement that is relevant.**

[^6]: **Automation results in the near elimination of tax evasion
    controversies and the related tribunals at all government levels**

[^7]: **The cost of compliance in 1995 averaged 20 -- 50 percent of the
    revenue raised by the tax system and 1.9- 4 .1 percent of GDP -
    Arthur Hall testimony , House Ways & Means Committee , March 20,
    1996**

[^8]: **Sole proprietorship or partnerships are governed under rules for
    commercial enterprises**.

[^9]: **Except transfers that are specifically exempted**

[^10]: **If fair market value is less than cost, then cost is the
    applicable base**

[^11]: **See Assignments this paper**

[^12]: **Code section 351 IRC 1986**

[^13]: **Code section 1031 ( c ); reg. 1.103 ( c )-1**

[^14]: **Code sections 331 (a ) & 336 ( a )**

[^15]: **Commodity accounts for this purpose are equivalent to net Code
    Section 1256 transactions**

[^16]: **A \$2000 annual contribution for ten years to a tax deferred
    account will generate approximately \$29,500 as opposed to \$25, 800
    when it is taxed at 39.9% representing foregone growth of 18%**

[^17]: **We do not recommend that governments reset the WTX tax rate
    without either a two-thirds majority vote or a referendum.**

[^18]: **See perishable currency -- this paper**

[^19]: **Under reporting of sales for income tax must coincide for sales
    tax purposes as well. Appreciated asset accumulations escape Federal
    income tax. Code section 1014 (a )**

[^20]: **The vendor collection system is replete with evasion tactics
    and there is a significant cost to compliance. The NRST advocates
    compensating vendors for the collection. Processing collection
    through banks is much less costly**

[^21]: **Sales tax in many states are as high as 8.25 percent, gasoline
    , cigarette, liquor and parking taxes are all in excess of 10%**

[^22]: **See flowchart appendix B**

[^23]: **See political implications**

[^24]: **Statism is the belief that the state should control and
    regulate virtually all economic activity.**

[^25]: **Federal Reserve bank statistics**