Such a tax would be able to identify the product or service being consumed, at the point of sale (POS), down to the individual product or service performed, by means of today's information technology. The tax is fully electronic and relies on the actual information in financial and economic data bases rather than forms or statements provided in the past.

The consumption tax system will be able to identify the two parties to the transaction, both the buyer and the seller, and by means of electronic communication or personal smart cards, it will obtain the financial and regulatory information of each. The tax will be collected for all transactions, by electronic means, at the POS or at each bank's computer system, much in the same way a credit/debit card authorization is performed today.

Knowing that that the tax system would be able to be collected automatically, and that the product or service given can be fully known, along with the financial means of the buyer and the tax status of the seller, then we can begin to politically configure a much more sophisticated and dynamic tax system.

A buyer can in effect be means tested at every transaction, thereby allowing for a whole new dimension in taxation. The tax rate can be varied along a formula that takes into account four variants of the transaction:

1) The means of the buyer as defined by the means test formula adopted politically,

2) The tax rate or exception of the product or service given,

3) The location or tax status of the seller,

4) The current political reality of the nation.

If the means test is negative, the tax in effect can become negative and grant a credit on the spot for the product or service rendered. The products or services can be taxed at different rates or formulas. Tax exemptions can be granted for those products or services provided by sellers.

The tax rates or formulas may vary dynamically, according to the needs of the time, even on a daily basis. The EIC becomes dynamic, eliminating the need for further welfare subsidies. For example, medical insurance can be a tax subsidy, if the means of the family are within defined parameters, but may be taxable if the means test so indicates. Affordability for all goods and services are thereby guaranteed, if the service has been politically defined as essential to the well-being of the family, such as food, shelter and medical coverage.

Checks can also be used in such a manner, but they will have to be modified to contain the tax ID of both the buyer and the seller, along with the category of the product or service given. This will not be a problem once checks are converted to ACH clearing, which is economically the only sustainable way to continue DDA banking. For example, medical savings accounts can be used to purchase health insurance only, since the category of the health account indicates that the account is for medical use, and the account or the derived tax ID of the seller indicates that it belongs to an authorized medical insurer. The point of sale becomes the bank, and the effective time is that when the bank's system is updated.

The system does require a national tax id or social security number which can be used to obtain immediate means information from a central data base, or by means of a data switch, access to such information in distributed data bases. There would be no forms to fill out per transaction, since all such information would be stored at the financial institutions where the person or corporation handles his/her finances.

Changes to a families means level could trigger a means test update program, whenever an employment status changes, or other financial information change is detected at the accounts.

The use of cash for purchases can be minimized if such use is taxed at the highest rate whenever the cash is deposited at the bank, making such a use undesirable for the consumer, and making the seller responsible for collecting the highest consumption tax rate by default.

When smart cash cards become available, the system becomes completely closed, since the consumption tax POS program can also be performed using smart cash cards as a source of the buyers means and financial information.

A POS consumption tax also enables the use of standard minimum pricing, which will solve our current international economic imbalances, and provide for a stable ride to the next century.

Atlanta
January 27, 1997