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The transactions directly associated with the production of final goods and services, amount to roughly twice the GDP, reflecting both the income and expenditure sides of the National Income and Product Accounts (NIPA). The included transactions consist of payments to factors of production (income) and payments for final goods and services (expenditures). Although these transactions represent less than 5 percent of total transactions, they constitute the principal portion of the current tax base. The APT tax on payments related to the final production of goods and services amounts to a flat rate personal income tax (on wages and salaries; interest, dividends and rents), a flat rate corporate income tax and a differentiated expenditure tax. Output is stimulated by the effect of replacing the current income tax with an APT tax. The reduction of average and marginal tax rates on current taxable income from more than 30 percent to approximately 0.3 percent drastically reduces the present tax incentive to substitute leisure for work. Since the APT tax system permits neither personal deductions nor exemptions, it taxes all personal income sources at the same low rate, eliminating current distortions that favor some types of income while discouraging others. Aaron and Galper (1985) show that when fringe benefits are not taxed as part of employee income, firms have an incentive to provide such benefits even though their costs far exceed what employees would normally be willing to pay for them. Under the APT tax, firms have a tax incentive to reduce overall costs. Employees, whose marginal tax rates on wages and salaries are reduced from roughly 30 percent to 0.3 percent, have little incentive to over consume fringe benefits, choosing instead higher wages and salaries that can then be used to efficiently purchase health care and other The effect of the universal transactions tax is to reduce and to equalize the tax retirement benefits. Th rate on all forms of compensation, thereby eliminating the current over-consumption of those goods and services that have low before tax benefits but high after tax benefits. The lower marginal tax rates on income are likely to eliminate most of the supply side misallocation effects associated with the present personal and corporate income tax. Since the tax is on all forms of income, it also eliminates the current disparity between the withholding of taxes on non-withholding wages and salaries and the non nonwithholding of other income sources such as dividends and interest payments. The APT tax fundamentally changes the incentive structure facing firms, consequentially altering the strategic rules of doing business. Present tax rates in excess of 30 percent are imposed on recorded income (revenues minus costs), whereas the APT tax rate of 0.3 percent is levied on the firm's total transactions (revenues plus costs).