Well some of Senator Shumer’s closest friends certainly like that idea! (In November 2011, Senator Tom Harkin (D-Iowa) and Representative Peter A. DeFazio (D-Ore. introduced new legislation to impose a financial transaction tax.) For a variety of reasons I don’t! In fact, I find it to be a horrendously BAD idea!
What you think and $2 will get you a cup of coffee, with change to spare.
The article is quite interesting, and I would never suggest that a financial transactions tax would not be without problems, but other than that I didn't find any particularly devastating issues with a broadbased FTT (as opposed to the narrow-base STTs mostly discussed). In fact, the article itself indicates that a well-designed FTT could in some circumstances be less distorting than the current capital income taxes we have.
The issue of cascading is an interesting one, but (a) I don't think it's as dire as the article implies, (b) we already have cascade effects under the current income tax, especially when it comes to corporate dividends, and (c) both sales taxes and VATs have effective mechanisms to reduce the impact of cascading and, as the article itself suggests, there is not reason in principle why any undesirable cascading in an FTT could not be similarly mitigated.
Finally - and this is something you
ought to be aware of, given the IRS is your idee fixe - the article omits any real discussion of real-world compliance costs - including most importantly the so-called "hidden" compliance costs taxpayers incur in attempting to comply with a given tax regime. In defense of the article, it was completely reasonable to ignore that issue to focus on the issues the article addresses. However, when implementing an actual tax system - and especially when comparing two different tax regimes - the full compliance costs, direct and indirect, must
be taken into account. The direct costs of compliance with the current income tax, principally the IRS' annual budget, amount to roughly $13 billion as per the Treasury report here: http://www.irs.gov/PUP/newsroom/FY%202014%20Budget%20in%20Brief.pdf
The indirect costs of compliance - the costs taxpayers themselves incur in complying with the tax regime, as well as the economic losses they suffer because of the tax system - are harder to determine but estimates run from as low as $215 billion to as high as $987 billion per year
as discussed in this article: http://mercatus.org/sites/default/files/Fichtner_TaxCompliance_v3.pdf
To make the issue of compliance costs a little more straightforward, and because the article you posted has already discussed the potential economic distortions caused by an FTT, let's just consider the accounting costs incurred in complying with the tax code. According to the article I just cited, estimates of those costs range from $67 billion to $378 billion. Of those estimates, the one of $378 billion appears to be the most reliable for our purposes because (a) it is the most recent of the estimates the authors reviewed, and (b) is based on the IRS' own estimate of the number of hours various classes of taxpayers spent on compliance, multiplied by a real-world hourly cost for accounting and compliance services (which in the real world are significantly higher than the hypothetical hourly rate used by the IRS. Taken together, the direct and indirect costs of tax compliance under the current system appear to be approximately $390 billion (at least). The federal government received tax revenues of about $2.45 trillion in 2012 (see page 5 of the article cited). That means that total compliance costs are about 16% of revenue raised.
As an aside, I would point out that the compliance costs identified in the article I've cited are almost certainly understated because - being accounting costs - they do not reflect the substantial costs taxpayers incur in defending themselves against audits, additional assessments, and collections. Hiring a lawyer to defend one's self against an audit, an additional assessment, or enforced collections can very, very easily cost someone $5,000, $10,000, or more, depending on the complexity of what's at stake (an average hourly fee of $300 for legal tax representation is, shall we say, not uncommon, and at that rate 15 hours of work by your attorney would cost you $4,500; reviewing several years' returns to issue spot and do analysis can easily take 10 hours of time; preparing to litigate a deficiency case in Tax Court can easily cost twice that, or more).
An FTT - particularly a broad-base ad valorem FTT - would not have anywhere near those sorts of compliance costs. A real world FTT would therefore have significant additional advantages that your article does not discuss. In the real world those differences could make all the difference in the world.
so, here's your cup of coffee
and here's your change