**Proposal to Replace the existing Tax System**

**Submitted to President's Advisory Panel on Federal Tax Reform**

North Hollywood, California, USA Date: April 26, 2005

Submitted to: comments@taxreformpanel.gov

Submitter: Alf Temme

Organization: [www.UniversalTax.com](http://www.UniversalTax.com/)

Date of submission: April 26, 2005

Contact Information:

8137 Lankershim Blvd

North Hollywood, CA 91605

Ph: (818) 787-6460

Email: [info@UniversalTax.com](mailto:alf@UniversalTax.com)

Category of submitter: Business owned by Alf Temme since 1963.

One page Summary:

I have named the tax method of this proposal "
[www.UniversalTax.com](http://www.UniversalTax.com/) " because it not
only will replace the Federal Tax but also can be a single Universal tax
collected to replace many or all other taxes combined at State, County
and Local levels of government. It further has Universal application in
many other modern economies/countries and I will submit it for their
consideration as well. Whichever country adopts the UniversalTax.com
first will have the pole position in being the World leader in this new
economic breakthrough tax revenue generating machine.

Some of the main advantages of this UniversalTax.com proposal are:

-   It can be fully "road tested" for its efficacy prior to enactment
    into law.

-   No record keeping required for individuals and 90% of all
    businesses.

-   No tax forms to be filed for individuals and 100% of businesses.

-   No audits ever needed for individuals and 90% of businesses.

-   Minimal collection cost, lower than any other form of taxation.

-   Will save US economy over \$1.5 TRILLION per year (current dollars).

-   Tax rate changes are easily implemented to make the tax revenue
    neutral.

-   Can respond to regulate inflation rates resulting from seigniorage.

-   Can combine into a single collection Federal, State, County and
    Local taxes.

At considerable personal expense I have submitted the UniversalTax
reform proposal in the form of a 92 page utility patent application,
submitted to the US Patent Office on April 1, 2005 (Not an April Fools
joke). I chose the form of the patent application for a very specific
purpose, namely it forced me to make a proposal that follows the
requirements for a utility patent in that an invention MUST have
UTILITY. A patent application can not be written in the form of
philosophical scholarly musings, it MUST WORK and it must have immediate
practical application. This UniversalTax proposal is fully fleshed out
in detail so that it can be taken to the legislatures for a vote on a
test implementation that would determine the exact tax rate for the
UniversalTax required to replace the Federal Tax and the possible
combined single UniversalTax rate to include taxes at State, County and
Local levels as well. When the Federal Government has implemented
UniversalTax then the constituents of lower levels of government would
bring enough political pressure to bear on their State, County and Local
governments to adopt UniversalTax.com

The Request for Comments by the Advisory Panel is only aimed at Federal
taxation, all references to eliminating and replacing with UniversalTax
other taxes in this reform proposal are only left in by me to stimulate
this Panel's interest in cleaning up at the same time the rest of the
tax mess and administrational burden on all citizens at all lower levels
of government as well . The references to other than Federal tax may be
ignored by this Panel in evaluating this proposal.

TOO GOOD TO BE TRUE? If this would really work we would have heard about
it years ago? Not really, because the UniversalTax form of taxation can
only be done in countries having a highly modern electronic transaction
enabled banking system. This form of tax collection would not have been
easily implemented even just a few years ago. Today all needed
electronic banking facilities are already in place, ready for swift
implementation of this tax reform plan. Going with the times, you should
not attempt today's tax reform with yesterday's technologies and ideas.

Respectfully,

Alf Temme, small business owner since 1963

**Proposal description**: The Request for Comments #2 (April 5, 2005 --
April 29, 2005) mandates a page limit of 10. In this case where a fully
descriptive and detailed 92 page tax proposal already exists (at
[www.UniversalTax.com](http://www.UniversalTax.com/) ), it is like
re-writing a musical symphony with full orchestration by eliminating 89%
of its notes and instruments . It leads to a very disjointed piece of
music only for drums. I will try my best.

**The Advisory Panel requests as follows:**

**I.** **Description of Proposal** . Proposals for comprehensive reform
should include a description of the design of the proposal\'s
components, including the following:

-   the tax base (income, consumption, hybrid)

-   exemptions, deductions, credits and exclusions

-   tax rate(s)

-   distribution of the tax burden (including provisions for low-income
    individuals);

-   treatment of charitable giving

-   treatment of home ownership

-   collection method(s) and

-   treatment of businesses

**[The tax base]{.underline}**

The total of fund transfers within an economy forms the tax base of the
[www.UniversalTax.com](http://www.UniversalTax.com/) .Fund transfers are
monitored at entry into the banking system and exit from the banking
system. There are three distinct categories of fund transfers:

**Money Transfers associated with production and consumption of goods
and services.** A UniversalTax rate of 5% for these transactions will
create revenue in excess of all forms of taxation combined at Federal,
State, County and Local levels of government ( excluding propery taxes
and energy taxes). This 5% transfer tax could be an incentive for
vertical integration in certain large manufacturing industries but in
general a 5% tax will be outweighed by the vast advantages and greater
efficiencies of outsourcing.

**Money transfers that take place purely as a result of the exchange of
financial instruments/assets.** Exchange of financial instruments/assets
from one holder of the assets to another holder does not create value
and does not add to the standard of living, yet this category of fund
transfers associated with financial instruments/assets constitutes the
vast majority of the total monetary value of money transfers, estimated
at over 85% of money movement. The vast majority of this financial
instrument money movement is involved in arbitrage transactions. It has
been variously deemed desirable to somewhat temper this sort of
manipulative arbitrage trading by legally restricting the practice. The
easiest way to temper the practice is by applying a very small tax on
this sort of transactions. This UniversalTax proposes to initially apply
a minute percentage of tax such as less than 0.01% and gradually
increasing the percentage over time and monitoring the volume of the
manipulative trading practices to where they will have decreased to an
acceptable level while still maintaining a healthy liquidity in those
financial instrument markets (bonds, stocks, commodities, mortgages,
leases, etc.). Less than 10% of the total Federal revenue is expected
from these initial over 85% of monetary value transactions the total
volume of which is expected to drop substantially after this very small
tax has been applied.

**Money transfers that take place where money stays in the same hands
and merely moves from one account into another account.** This form of
fund transfer does not create value either and will be completely
exempted from taxation by way of special handling and coding at the bank
level or by way of refund request.

Every fund transfer is processed for taxation at its entry and exit
points to the banking system by deducting from the transaction value an
equal percentage at entry and exit points. The banks at either end of
each transaction collect data about the geographic nexus of both
transacting parties so as to be able to credit the appropriate tax
jurisdictions other than the Federal Tax jurisdiction if the
UniversalTax were to be taken optimum advantage of to not only collect
Federal tax but also collect most other taxes at all lower levels of
government at the same time. The taxes collected by the banks in this
manner are transferred electronically to the Federal Tax jurisdiction
and to all other included tax jurisdictions having nexus to the
transactions.

**[Exemptions, deductions, credits and exclusions]{.underline}**

The UniversalTax.com (full 92 page proposal) provides for exemptions via
special coding for electronic reading of specially for exemption
pre-authorized transactions and for exemptions that can be authorized
after special handling for a refund request to the central revenue
collection authority (IRS could remain in that function at the Federal
level of taxation). Certain transactions (for example those exceeding
certain large monetary value) are transacted at lower tax rates.
Financial market trading transactions are taxed at extremely low tax
rates as to preserve a healthy market liquidity. No other special
exemptions, deductions, credits and exclusions are allowed under the
UniversalTax.

**[Tax rates]{.underline}**

Tax rates are as discussed above. An initial 5% total tax on all money
transactions with underlying transactions for goods and services with
half (2.5%) collected by the banks on either end of the transaction as
outlined in the full 92 page UniversalTax disclosure. This tax rate will
result in total revenue far exceeding current revenue received from all
revenue sources at all levels of government (excluding property taxes
and energy taxes). The tax rate can be adjusted and fine-tuned to be
revenue neutral before implementation and full switch-over to the
UniversalTax after first conducting low cost "road testing" of this
proposed tax system. The beauty of the UniversalTax is that it offers
the opportunity of "road testing" while maintaining the current awful
taxation fully intact. This safety aspect of the UniversalTax reform
proposal makes it inherently more "saleable" to the general public and
the various legislatures as well, because we humans are a very stubborn
race that is very resistant to change of any kind. We will vehemently
defend any bad system if we have suffered it for a long enough time. We
do that because we prefer the evil we know over the promise of something
we are not certain of, even though the promise sounds like a great
improvement. The "selling" of a new tax reform idea must include
incentives for the public and congress to overcome their natural
aversion to change. This UniversalTax requires far less courage from
lawmakers for enacting it into law and for implementation when it first
can be proven completely safe for "human consumption" and when the tax
rate can be nearly precisely determined after a low cost test that is
funded and authorized by congress. The tax rate can be set to where the
tax is exactly revenue neutral.

**[Distribution of the tax burden (including provisions for low-income
individuals).]{.underline}**

The UniversalTax very precisely follows Adam Smith's 4 maxims for
taxation. In the matter of "distribution of the tax burden" Adam smith's
maxim #1 applies:

*"The subjects of every state ought to contribute towards the support of
the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state".*

The UniversalTax accomplishes exactly the desired effect of "nearly as
possible" by the very fact that "the poor" will transact money movements
that are as "nearly as possible" matched to their low-income status and
therefore contribute far less revenue, but exactly proportionate to the
lower total value of money movement transacted. The fact that they are
contributing the exact same percentage of tax as everyone else elevates
them to equal respectable status as everyone else in society and does
not degrade them to second rate citizens as is true in our current
income tax system. There are no tax related provisions with the
UniversalTax for relief for low income individuals. Such special relief
can be provided, if deemed appropriate, by way of special grants through
enabling legislation. The wisdom of such special grants is very much in
question according to my
[www.UniversalDemandLaw.com](http://www.UniversalDemandLaw.com/) . The
better solution for relief is the vast improvement of the total economy
by lifting the heavy yoke (joke?) of current taxation schemes off its
shoulders. The very low-income individuals are also more likely to
transact money movement with cash currency by which they are not subject
to the UniversalTax and thereby gain some of this "relief" by way of a
small edge of making fewer transactions subject to the tax deduction.

**[\
Treatment of charitable giving]{.underline}**

The UniversalTax has incorporated in it (see 92 page full disclosure
\[Para 121\] through \[Para 134\]) a fantastic improvement for
charitable giving that will result in vastly reduced fundraising costs
by the charitable organizations (a cause for unemployment for many of
the salaried people associated with fundraising efforts) and a vastly
increased net result funding for those charitable non-profits. In short,
UniversalTax has an allocation of a percentage of the tax (a proposed
10% of the total tax) to be earmarked for charitable giving by the tax
contributing bank account holders. Bank account holders will be able to
attach to their bank account special electronically readable codes that
instruct the allocated charitable percentage of tax collected to be
disbursed to the charitable organization(s) of their choice. As
mentioned earlier, the UniversalTax has incorporated in it a lot of
aspects that make it very much more "marketable" to the public and
legislatures alike. It does not make sense to make tax reform proposals
that cannot be "sold" to the public and the legislators. Charitable
organizations have massive support among the public and they also have
massive lobbying power with legislatures. It is therefore very unwise to
make tax reform proposals that do not incorporate offset provisions for
the tax-free status and tax deductible provisions enjoyed by charitable
organizations under the current income tax system. The UniversalTax has
incorporated in it a very powerful and attractive offset provision for
charitable tax exempt organizations that will greatly enhance the money
donations received by them. Most other tax reform proposals totally
abandon the charitable organizations and leave them dangling in the
wind. That fact alone will never get those tax reform proposals through
congress. Churches, Red Cross, United Way, March of Dimes, this
foundation, that foundation . . . they will never let it happen to lose
their tax advantages they now enjoy. So the UniversalTax will offer all
the non-profits vastly greater advantage than what they now have. The
UniversalTax is their ally and is deserving of their strong support.
Where does all that extra money for the non-profits come from? It comes
from the savings in the cost of fundraising efforts and the greater
certainty for taxpayers to contribute by way of coding the

**[Treatment of home ownership]{.underline}**

The provisions associated with home ownership for interest write-off and
capital gains allowances when selling a home under our current totally
sick income tax system are amply offset by the UniversalTax reform
proposal by the fact that there is no capital gains tax component and
there is a vastly reduced transfer tax on large money transfers of
incrementally larger monetary value. The total tax amount paid on total
money income by a wage earner or salaried person under the UniversalTax
is exactly 5% and no more of total money deposits (or whatever exact tax
percentage is determined to be appropriate after "road testing" the
UniversalTax). That is a very low percentage as compared to the
percentage of income paid in income taxes by the average home owner
under the current income tax system.

**II. Impact of Proposal Relative to Current System** . The description
of the tax reform proposal should include an explanation of how it
compares to our existing system in terms of the following factors:

-   simplicity (including transparency and stability)

-   fairness

-   economic growth and competitiveness

-   compliance and administration costs

**[Simplicity (including transparency and stability)]{.underline}**

The UniversalTax is exceedingly simple in that it requires no record
keeping and tax filing for individuals and 90% of businesses. It is also
totally transparent in that it is a very straight forward percentage
deduction of tax from money transactions as described above. Stability
is extreme in that this system is very little affected in terms of total
revenue collected during economic downturns and upswings. Our current
income tax is completely the opposite in terms of simplicity,
transparency and stability.

**[\
Fairness]{.underline}**

The UniversalTax is extremely "fair" in that it extracts taxes in
amounts that are completely commensurate with the receipts of money by
all individuals and businesses alike. Wage/salary earners will actually
experience no taxation at all on their wages/salaries because their
paychecks can be made out with the net wage amount shown in the usual
place on the check and a 5.3% employer tax contribution shown in a
separate place on the check which amount as nearly as possible equates
the 5% tax deduction for the two figures combined (net wage plus 5,3%
employer tax contribution). This method of writing out paychecks
(described in more detail in \[Para 115\] of the full 92 page tax reform
proposal) projects the appearance of the employer paying the tax instead
of the employee. Again this provision of how to make out wage checks is
not meant to underestimate the intelligence of the wage earner but to
make the tax system more transparent and win the public's sympathy for
this tax system by clearly displaying the exact amount of the tax that
the wage earner contributes to the public coffers through his/her
employment. It is another "marketing" tool for the UniversalTax to
"sell" this tax reform proposal to the public and the congress.

**[\
Economic growth and competitiveness]{.underline}**

The UniversalTax reform proposal was totally conceived with economic
growth and competitiveness in mind. The current income tax system has an
enormous stifling influence on economic growth because it discourages
young people to start small businesses of their own on account of the
daunting amount of record keeping required by the current tax system and
the risks of violating any of the massive provisions in the complicated
tax codes. Taxing agencies have forced a lot of employers out of
business and continue to do so. That has a very stifling effect on the
enthusiasm of people to go into business for themselves. The
UniversalTax has absolutely no record keeping requirements for
individuals and 90% of businesses which includes of course 100% of all
small businesses and upstart businesses. Competitiveness is very much
stifled by the current system of taxation in that it drastically reduces
the productivity of small business owners by way record keeping
requirements. That time is sorely needed for more productive purposes in
their small businesses (I know firsthand from 42 years of toiling with
tax related recordkeeping by myself and my wife. I could have used all
that time much more productively). Productivity is also reduced in small
and large businesses alike by all manner of tax provisions that
influence purchasing decisions for capital equipment and influence the
making of other expenditure decisions on account of tax write-off
provisions that may delay or advance the time when such expenditures are
made. Such restrictions on business decisions influence productivity and
competitiveness as well. The UniversalTax has no such productivity and
competitiveness restricting aspects.

**[Compliance and administration costs]{.underline}**

This is where the UniversalTax outshines any other tax proposal of my
knowledge (and that knowledge has grown substantially during the process
of my tinkering with ideas concerning taxation since 1975). The
compliance under the UniversalTax is estimated to be near the 99% mark
with less than 1% expected cash currency transactions that have no nexus
to a bank at either the payer side or the recipient side of the
transaction. From various estimates regarding the average rotation
cycles of cash currency in circulation it is expected that the number of
circulation cycles of cash will be fewer than 3 before the cash hits a
bank at the recipient side of a transaction. The average amount of money
involved per cash rotation cycle is vastly smaller than the average
money transaction by other means. Another cause of non-compliance will
be the settling of accounts between two very large businesses that both
have bank accounts outside the country in which they conduct business
and in which they are required to pay their taxes by way of money
movement transactions. These attempts of tax evasion can only be made by
very large amounts because the extra inconvenience and offshore facility
requirements do not make sense at smaller amounts of money transactions.
The fact that such transactions will be made punishable by large fines
or worse will make these kind of illegal transactions extremely
unattractive, specially since two very willing conspiring partners in
such transactions are mandatory and they run the risk of being ratted
out by any of their employees. Such illegal transactions are also made
much less attractive since transaction amounts of large monetary value
are taxed at a lower than standard UniversalTax rate.

**\
III. Transition, Tradeoffs and Special Issues** . The description of the
tax reform proposal should include an explanation of any special issues
or considerations, such as the tradeoffs that would be required,
favorable/unfavorable treatment of particular industries or sectors
within the economy, or the impact of transition from our current system
to the proposed system

**[\
Transition]{.underline}**

When a proposal for tax reform guarantees great simplification in
revenue collection, record keeping and administration through the new
method of taxation, it will at the same time have to guarantee the
creation of massive unemployment in all job categories and businesses
that owe their sole existence to the great complexity and unneeded
burdens created by the current method of taxation. It is an enormous
problem that must be recognized and the solution for which must be
incorporated as a very important part of any tax reform proposal that
promises simplification. Since most so-called tax reforms in the past
have often only complicated the current taxation methods, they actually
accomplished to increase employment in the tax related job sectors so
that the unemployment issue never came to the fore. Most other highly
touted so called "improvements" to the present method of taxation were
on the order of a change in the font size and wording on the 1040 form
or some such minutia that would rate with an earthquake of Richter scale
ONE. The UniversalTax promises to shake the economic landscape at
Richter scale 9 and the massive destruction of jobs in the employment
sector with nexus to taxation must be addressed by a special branch of
FEMA tasked with disaster mitigation, preparedness, response and
recovery planning during a transition plan that will need several years
of massive funding authorized by congress to aid the tax related
employees in transition and attrition financed out of the windfall
billions of reduction of government administration costs associated with
the UniversalTax and an initially slightly higher UniversalTax rate
during the several years of transitional support required for the tax
related unemployed. The
[www.UniversalTax.com/PageID=80](http://www.UniversalTax.com/PageID=80)
deals in more detail with the implementation related solutions.

Alf Temme