For example, he is proposing to scrap the 70,000 pages of US tax code, and replace income tax completely by a simple financial transaction tax. He doesn't call it an FTT - instead it's an FST (financial settlements tax), but effectively very similar in its mode of action.
Here's how he presents the idea in his book "A Nobody for Everybody"
"By primarilly taxing income, we have selected far too narrow a category of economic transactions to tap. Our personal income totals almost $15 trillion, while the federal budget is $3.9 trillion per year. Trying to extract $3.9 trillion from $15 trillion results in heavy taxes and a deficit."Great Scott!! The man's a genius!
[...] If we were to tap a much broader segment of our economy such as financial settlements, we could greatly reduce the burden on any single taxpayer ..."
"Settlements made through banks and non-banks (such as credit unions) totltaed $4,456 trillion in the year 2013. That is nearly 300 times the amount of our collective income. Clearly we are taxing the wrong thing!"
"Dividing the governments 2015 budget of $3.9 trillion by $4,456 trillion yields 0.0875% - the percentage that must be evaporated from each financial settlement in order to balance the budget. We will round that number up to 0.1%, a mere tenth of one percent.
"The Financial Settlements Tax is an astounding tool. At the low rate of 0.1% the FST would eliminate the need for personal and corporate federal income taxes, Social Security taxes, Medicare taxes, unemployment taxes, estate and gift taxes - even excise and custum taxes - all of which cause much pain and yet fall hundreds of billions of dollars short of balancing the budget".
Well, of course I would say that - because it is essentially exactly what I have been saying for over 5 years - since my first foray into the world of economics with my paper "A Flat Rate Financial Transaction Tax to replace all taxes?" published in October 2010. It was also the theme of my last TEDx talk last year (in French) called "Vers un monde (pratiquement) sans taxes").
I don't know whether Scott Smith has read any of my stuff. But frankly, if he can promote the basic ideas, I'm happy. But, if he does read this, he might make use of the more recent figures that I have provided. For example, the Bank for International Settlement's final figures for payment, clearing and settlement systems in 2014 have just been published.
I suspect that the €4,456 trillion figure for 2013 used by Scott Smith is not actually the right one. On page 34 of his book he says that :
"Table 11 in the Committee on Payment and Settlement Systems report... shows that settlements through the Clearing House Interbank Payment System (CHIPS), Fedwire, checks, ACH and on-us payments totalled $1,429 trillion in 2013."Here's the actual table from the reports.
Scott Smith also uses some other tables.
"Table 21 in the Red Book shows that the value of contracts and transactions cleared at the National Securities Clearing Corporation, the Fixed Income Clearing Corporation, the Government Securities Division, and the Mortgage-Backed Securities Division totalled $2,517 trillion in 2013."However, close inspection of page 439 of the full pdf file shows that the figures for the two parts of the FICC have been double counted.
The correct number for 2013 would be $1,147 trillion, and the new number for 2014 is $1,329 trillion.
Likewise, I would also question Scott's statement that :
"Table 26 in the Red Book shows transactions cleared at the Depository Trust Company and the Federal reserve totaled $418 trillion in 2013".Again, the figures don't quite match when you look at the Table itself.
I also note that Scott Smith decided not to include the stuff in table 18 that gives the total value of executed trades. Here it is for good measure, but you can see that firstly, there are loads of values taht are "nav" - not available, and that secondly, the values of trading on the New York Stock Exchange and the Nasdaq are peanuts compared with the rest - a mere $33.7 trillion in 2014
So, here is my version of the trading figures based on the BIS's figures.
I make the total over $3,618 trillion in 2014, up 6.8% on 2013.
But Scott, if you are reading this, please remember that the BIS figures are hugely underestimated. There are massive parts of the US economy that don't get a mention. Sure, BIS state that they only report "selected payment systems", but there is really no excuse for such laziness. For example, it would appear that the people at BIS have never heard of the Chicago Mercantile Exchange Group. That's extremely odd when you can read on CME Group's webpage that it "is the world's leading and most diverse derivatives marketplace, handling 3 billion contracts worth approximately $1 quadrillion annually (on average)." Add that $1 quadrillion in to $3,618 trillion listed by BIS and we easily exceed the $4,456 trillion you mention.
Oh, and they apparently don't know about the Options Clearing Corporation either. Funny that, given that they are (I quote) "the world's largest equity derivatives clearing organization". And I just went on their website to get the latest data for the transactions cleared in 2015. Here it is:
OK. The total is down from the peak in 2011, when they handeled over 4.6 billion transactions. But the 4,210,542,258 transactions that OCC handled in 2015 presumably has some value associated with it. Has anyone got a clue how much?
We can learn a bit more from the OCC site. For example, I was able to learn that the breakdown was as follows
- 3,727,919,066 Equity contracts
- 415,718,205 Index/Other contracts
- 66,904,987 Futures contracts
But the really interesting figure is the value for premiums - over $1.2 trillion again this year. Can anyone say what was the actual value of the 4 billion plus transactions that generated all these premiums? I have the impression that premiums are a tiny fraction of the nominal values - maybe less than 0.1%. In which case, taxing the OCC's massive volumes at the 0.1% proposed by Scott Smith, could generate trillions more of revenue.
The really good news is that, at last, a real politician has started asking the right questions. Maybe 2016 will be the year when our elected representatives will finally start thinking about some alternatives to the current totally ridiculous system.
Actually, I could also mention that Scott Smith has some other interesting suggestions in his program. For example, he doesn't see the Financial Settlement Tax as a way to finance the government. Instead, he would allow the government to create its own money, that would be used to finance public sector spending - much like the QE for citizens ideas that are being promoted by groups like Positive Money and by Adair Turner. The FST would simply serve to remove the excess money from the economy. It's very close to my proposal that Central Banks should have two levers - one to inject money directly into the economy, the other to remove any excess.
One final point to hammer home is that Scott Smith is no looney left-winger. His background was in Wall Street finance. In the 1990s, he was an early pioneer in structured finance, developing the model for conduit financing. And in the past decade, he has helped co-found four enterprises : C Squared, FinaTech, Blue Cheeter and Fathym. And when you think about it, his suggestions seem to make perfect sense for everyone.