Preface

The American people have long been recognized globally for their great ability to innovate and motivate change. For the most part, this creative mechanism has been consistent in our daily lives, except perhaps when we assess our most powerful government agency – the IRS.

Dr. Jeffrey Ross, a long-time English professor and published author, brings a unique and robust perspective to our current tired– and tiered– system of taxation.

His approach is fresh and fascinating. This book takes you through a detailed, yet simplistic, array of solutions designed to minimize and eventually eliminate the overwhelming stress we all feel during the pre- and post-tax season.

Ross is a pioneer. He shows no fear as he confronts this great challenge which faces our nation — at the very least, his book will give you food for thought and, hopefully, promote a dialogue that will stimulate “the final revolution” for total tax reform.

David S. Jones, Sales Executive

BA, McGill University

Introduction to the TFP System

Since 1862, the Internal Revenue service has taxed personal income (of various types) to fund the federal government. (See Appendix A below for a brief history of the IRS). Each tax period has a certain flavor, so to speak, and the Code is typically reviewed, nuanced, and recast, but the information below succinctly describes the typical 1040 tax events and the massive numbers of individuals and amounts of money involved.

During fiscal year 2014, the IRS collected almost $3.1 trillion in federal revenue and processed almost 240 million returns. About 65 percent of all returns were filed electronically. Of the 147 million individual income tax returns filed, 84 percent were e-filed. Over 116 million individual income tax return filers received a tax refund, which totaled over $330 billion. The IRS examined less than 1 percent of all tax returns filed. About 3 percent of all individual tax returns examined resulted in additional refunds (IRS.gov).

Before the reader examines and analyzes the following text, you would be well served to jettison or dismiss whatever you think about the personal US income tax system. The accouterments of 1040 culture are so powerful, so intrinsically manifested in our society, it is difficult to imagine a world without refunds, credits, forms, the AMT, and tax season. My simple Google search generated 545,000 tax preparer hits in less than one second—and a similar search with key word phrase “tax software 2016” generated over 9 million sites. Look at all the money spent, and made, on the mechanics of 1040 culture!

The very subjective nature of tax preparation and filing should be considered, also. Take “your taxes,” even the simplest of 1040 EZ situations, to five different preparers, and you may very well receive different interpretations and refund (or payment) amounts. (For an example of the subjective nature of tax accounting and preparation, see an article such as “A taxing challenge: Even experts can’t agree when preparing a sample tax return” (2007).

My proposal provides for a general schematic which clearly demonstrates how 1040 tax revenue generation could be replaced by a simple and cost-sensitive transaction fee system.

The notions of flat tax rates, regressive tax systems, and even fairness will not be part of this book’s working vocabulary. [See Appendix B below for a glossary of terms.] Tax reform is a popular topic among politicians and economists. With all due respect, most plans are only variations on the same old theme—income taxes. For example, Display 1 below contains basic outlines of the Rand Paul, Herman Cain, and November 2017 GOP Tax Reform plans.

Interested readers can find several flat tax plans detailed on the Internet. The new GOP plan is untested and complicated. Let’s move forward. Tax brackets can be changed, exemptions modified, capital gains rates altered, and credits given. All such plans require exceptions, or have hidden agendas, or fall short of expectations. Flat tax or simplified tax plans within the existing 1040 system are only new coats of paint on an old wall, a barrier of confusion, misery, and inefficiency. And you would still be filing taxes with any flat tax plan.

When I mentioned to both friends (and family) I was working on a new plan to fund the federal treasury, resistance appeared from all sides. Several individuals decided I was un-American. One went so far as to say the idea was clearly a kind of nutcase thinking—the crazy product of those who want to turn America into Somalia or some other fourth-world country. Another panicky acquaintance bawled, “I don’t want to lose my mortgage deductions! Don’t give the government any ideas.”

As you will see, my friend would lose his deductions. But he also would no longer have thousands of dollars withheld from his paycheck every year. He wouldn’t keep looking at the calendar to see how quickly April 15^th was approaching. He would no longer need a shoebox to keep receipts—or a cabinet or safe to store paper work or flash drives—or schedule appointments with a paid tax preparer. And yes, I am trying desperately to give the government some ideas.

Such a world without income taxes is nearly unfathomable. I have found it most difficult conversing about this proposal with almost everyone—they cannot discuss alternative plans to 1040 taxation without reverting to the vocabulary, the fabric, the images, and the tedious narratives of the tax system saturating our daily lives.

Author’s Qualifications

Many have indicated I am not qualified to propose any changes to the American tax system. They point out sanctimoniously I am not an accountant, an economist, businessman, or politician. Thankfully, they are correct. I work part-time at a community college, I have co-authored books and articles about leadership and values, I am a musician, I am a trained ethnographer, and I have paid 1040 taxes for nearly 45 years. In my opinion, the current income tax system is too complicated, too nebulous, too subjective, and never pleasant. Here is Jason Russel’s (2016) sobering description of the Tax Code’s growth:

As they rush to file their taxes by April 18, Americans are rightfully frustrated with the complexity of the 74,608-page-long federal tax code. The federal tax code is 187 times longer than it was a century ago, per Wolters Kluwer, CCH, which has analyzed it since 1913. Amazingly, in the first 26 years of the federal income tax, the tax code only grew from 400 to 504 pages. Even through President Franklin Roosevelt’s New Deal, the tax code was well under 1,000 pages. Changes during World War II made the length of the tax code balloon to 8,200 pages. Most of the growth in the tax code came in the past 30 years, growing from 26,300 pages in 1984 to nearly three times that length today.

The Code is a shapeshifter, an amoeba!  Reid (2016) claims the only way we can straighten out the income tax situation is to start over: “The way to bring about fundamental change in a dysfunctional tax code is to start over — to rewrite from scratch.”   Perhaps tax attorneys, CPA’s and politicians enjoy interpreting the code to those of us who are less informed, who must work for a living, and who live in daily fear of the IRS. Like most Americans, I am worn out hearing about tax brackets, exemptions, audits, wage garnishment, and how much tax the rich pay (or don’t pay). I am tired of keeping receipts in a folder, struggling to find deductions, and getting filed-away paper messes together to do my taxes every new year.

Yes, my qualifications are perfect to proffer a plan.

As stated earlier, it is very difficult to let go of the archaic notions of withholding, itemization, deductions, and Schedule A’s. The refund event is unbelievable. I am amazed American taxpayers are so happy to get a two or three-hundred-dollar refund—when thousands and thousands of dollars have been withheld from their paychecks for the entire year! Possibly some of you are convinced there is a moral obligation to pay taxes. In my opinion, morality or immorality has nothing to do with funding the government. My concern in this book is only how relatively painless mathematical efficiency can be applied to fund the Treasury. This proposal is about dollars and cents—especially the cents. And common sense!

Well-meaning folks have said my plan is unrealistic or unfair. As I will point out continually, fairness has nothing to do with this plan. I would challenge any of you to explain how the current system, the current Code, is fair—or consistent—or accurate—or simple. By the way, politics has nothing to do with this new proposal.

My new system for funding the US Treasury, The Transaction Fee Protocol (known hereafter as TFP) is based on mathematics, is not political, will generate sufficient funds, and is simple to articulate and conceptualize. Fully “automatic,” the TFP will work because the software architecture already exists to support its implementation. Fantasy football, cash registers, ATM’s, Amazon—all function daily using 21^st century tracking technology.

This plan is not related to any state income tax, sales tax, property tax, Social Security tax, Medicare tax, or corporate income taxes—although the TFP will collect monies from corporations as well. (However, simple adjustments to TFP fees could also be used to potentially fund national health care, higher education, and Social Security. More on other possibilities later.)

This proposal moves forward from a very simple observation—1040 culture exists because the United States government taxes personal income to raise trillions of dollars to fund the federal treasury. The amount will undoubtedly increase in the future—but so will American commerce and the GDP. I have nothing against the IRS or the giant cottage industry populated by tax interpreting and preparing professionals. Unfortunately for tax preparers, many of their accounting services will no longer be needed within the TFP universe. This new plan will provide a valuable place for the IRS. (It will become the “New IRS,” or “NIRS,” under the TFP system—a purpose-focused agency explained below.) But the essential focus of this book will be how we can raise 3.5 or 5.0 or 6 trillion dollars efficiently and accurately while eliminating the unwieldy and often suspect 1040 tax return process. I am not concerned with the future careers of tax preparation professionals.

Basic Premise

A trillion is 1 followed by 12 zeros—1,000,000,000,000. This is, of course, a very large number. The TFP plan, basically, is to “automatically” assess a one-cent fee (.01 dollar) on all trackable transactions in the US (or those related international transactions using American financial institutions). To raise 4 trillion dollars assessing one-cent per transaction, 100 X 4,000,000,000,000 transactions will need to occur per annum. Is it possible? I believe so, and you will too.

I came upon this “idea” while examining electricity consumption by American homes.

According to the US Energy Information administration, the total sales of electricity to all sectors of consumers (residential, commercial, transportation, and industrial) was 3,758,992,000,000 kWh’s in 2015. Think of this—a one-dollar surcharge (or fee or tax) on each of the kWh’s would have paid the 1040 tax bill for the entire country! Of course, no individual wants to pay such a fee. But what if fees were spread out into the network of electronic commerce?

What about a simple one-cent fee/charge on every financial transaction taking place within a calendar year? Billions and billions of transactions take place daily in the USA. I predict sufficient annual transactions occur in five major areas of the American economy to successfully replace the need for personal income taxes in the US (using the one-cent per transaction rate). These five sectors include Financial Services, Equity Markets, Energy, Retail Sales, and Transportation.

Examples and statistics from each are described below. I will not provide exhaustive lists of transactions. The New IRS will be charged with finding, monitoring, and validating appropriate transactions—and setting up the processes for channeling TFP monies into the federal treasury.

But the proposal provides stunning documented figures, which clearly support the veracity and simplicity of this plan. As a side note, I might mention it is quite difficult to find simple count numbers describing transactions involving some aspects of our economy. Growth and economic numbers are typically reported as per cent changes or dollar amounts—not in customer counts or retail sales transactions. However, I will supply sufficient information to clearly articulate the evidence supporting these ideas—and whet the reader’s appetite for absolute reform of the current federal personal income tax process.

Processing TFP: ACH, Software Platforms and Point of Sale Technology

The software and network technology exists to enforce accounting and collection within the TFP. People consummate numerous successful financial transactions both online and at point-of-purchase sites each day. Numerous robust online accounting and book keeping software platforms exist, including (but not limited to) QuickBooks, Outright/GoDaddy Bookkeeping, Xero Accounting, Free Agent, A2X, and Inventory Labs. Software architecture now supports sales, payments, inventories, shipping, or payroll disbursement. Interested readers should study the products offered by Salesforce.com, Oracle, various Ecommerce platforms, and the myriads of accounting services provided by cloud computing. They exist and function successfully.

And each of you reading this page is involved with some form of online transaction nearly every day.

Think of McDonalds, the NASDAQ stock exchange, Amazon, gas stations, credit cards, debit cards, and thousands more electronic sales events. Dollars flow, salaries are paid, and taxes are collected!

Two representative extant electronic financial “infrastructure” systems should be reviewed briefly to demonstrate America’s technologically readiness to adapt the TFP. These two “platforms” are the ACH (Automatic Clearing House) system and Point of Sale (POS) software.

ACH

According to Justin Pritchard, ACH payments are electronic payments made through the Automated Clearing House (ACH) Network. They are a popular alternative to paper checks and credit card payments because of the benefits to merchants and consumers: ACH payments are simply electronic transfers from one bank account to another. Look at any debit card statement, print or electronic, and you will see references to ACH activity. Common uses include:

1. A customer pays a service provider
2. An employer deposits money to an employee’s account
3. A consumer moves funds from one bank to another
4. A business pays a supplier for products

Per NACHA (2016), “The ACH Network is at the center of American commerce, moving more than $41 trillion each year. That’s made up of more than 24 billion electronic financial transactions, including Direct Deposit via ACH, Social Security and government benefits, electronic bill payments such as utility and mortgage payments, and person-to-person (P2P) and business-to-business (B2B) payments. The ACH Network supports more than 20 percent of all electronic payments in the U.S.” Think about this—ACH only supported 20 percent of all such payment transactions in 2016—there are another 80% to be discovered, tracked, analyzed, and counted!

Point of Sale Technology

“A point of sale system is a combination of software and hardware that allows merchants to take transactions and simplify key day-to-day business operations” (Crullon cited in Guinn n.d.). Essentially, POS technology includes a computerized check out network operated by a main computer and linked to several point of purchase (cash register-like) terminals including a host of features such as accounting, sales completion, inventory, and more….

All of us are familiar with Point of Sale technologies. POS is part of your daily shopping life. Think of computerized cash registers. They are “everywhere” now—from convenience marts to airports to department stores. One of the first microprocessor-controlled cash register systems was built by William Brobeck and Associates in 1974 for McDonald’s Restaurants (POS n.d.). The systems function at all outlets where purchase transactions occur. Guinn (n.d.) notes modern systems can provide the following services:

Inventory management

Membership system

Supplier recordkeeping

Bookkeeping and accounting

Issuing purchase orders

Issuing quotations

Stock transfers

Barcode label creation

Sale reporting

Tax management and collection

Early systems such as the McDonalds cash registers mentioned earlier were site-specific. Modern POS devices can be connected easily via the web and cloud computing. The POS system would certainly allow for tracking and reporting TFP events.

In summary—ACH would allow for online financial event tracking, and POS would allow for tracking daily retail or what were traditionally “analog” payment events.

Introduction to the Five Sectors

Below, the reader will find simple data displays which contain information about significant transactions within five important economic areas. Included are Financial Services, Equities Markets, Energy, Transportation, and Retail Sales. The groupings are arbitrary and are not all-inclusive lists of providers or institutions. They are also limited in number and scope. For example, the Energy section only discusses electricity and gasoline, and the Retail Sales section barely scratches the surface of retailers and customers. Other sectors could have been added— Communications and Shipping come to mind—but the five discussed below provide sufficient examples of the numerous trackable transactions taking place continuously in the American economy.

Remember, all figures mentioned in the displays below, whether numbers in the millions, billions, or trillions, represent a transaction event during which a one-cent fee would be assessed to fund the US Treasury. Dollar amounts in themselves are not significant. For example, if there are 50 million fast food customers a day, that represents 50 million one–cent assessments.

My belief is that the sheer bulk of electronic monetary transactions each year will generate trillions of dollars—one cent at a time.

These transactions are merely representative—a very small slice of the American financial transaction pie. But significant numbers of daily transaction events take place in the five sectors described below.

Sector 1: Financial Transactions (Banking-related)

At the heart of this proposal is the fact American financial transactions are easily tracked and reported. (Interestingly, the identity theft protection company Lifelock claims to monitor one trillion data points a day for activity (Lifelock, n.d.). The following bullet point information from a Federal Reserve Case Study (2013) below in Display 2 shows the staggering number of electronic transactions using cards, online ACH transfers, wire transfers, and ATM machines. Of course, within the parameters of the TFP funding systems, each of the transactions, payments, and transfers below would be assessed a one-cent fee. Think of the permutations possible to fund our government!

In related fashion… PayPal (n.d.) has become the global leader in processing online payments: In the second quarter of 2017, the company’s net payment volume amounted to 106.44 billion U.S. dollars, representing a 23 percent year-on-year growth. This payment volume was generated through the 1.73 billion transactions which PayPal processed during that quarter. (In 2016, the payment provider’s annual payment volume amounted to 354 billion U.S. dollars.)