Taxes in the digicash world

Hi

Suppose that digital cash becomes easy enough to use and becomes the
mainstream medium in most [or at least many] economic transactions.

The question is, how can the government TECHNICALLY collect taxes?
I do not mean to start `libertarianism vs. socialism' discussion, I
am more interested in the technical aspects of tax collection when
transfers of money are protected by strong crypto..

Let's say, maybe this tax would work: every time someone verifies that
a piece of digital cash is valid, s/he has to pay the government a little
percentage of the amount. Since digital banks are easier to control than
other participants of the market, this kind of tax legislation is easier to
enforce.

Of course these banks may be offshore, and then such collection
becomes problemstic.

Another alternative that I see is property taxes and poll taxes,or
taxes on some commodities such as oil. But incomes seem to be hard to 
track.

What else?

	- Igor.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
                          SANDY SANDFORT
 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C'punks,

On Tue, 30 Jul 1996 ichudov@algebra.com asked:

> ...how can the government TECHNICALLY collect taxes...when
> transfers of money are protected by strong crypto[?]

Igor answered his own question with regard to trying to tax  
digital money transactions at the bank level:

> Of course these banks may be offshore, and then such collection
> becomes problemstic.

He then suggested:
 
> Another alternative that I see is property taxes and poll taxes
> or taxes on some commodities such as oil.  But incomes seem to
> be hard to track.

Under a totally anonymous digital money scheme, directly tracking 
income becomes effectively impossible.  One solution that is used
in countries with historically low rates of tax compliance 
(e.g., France) is to base taxation on apparent wealth.  Not very 
efficient.  

Commodity taxes--especially taxes on only one or a few 
commodities--create market distortions as people seek to minimize 
their tax load by commodity substitution (e.g., natural gas or
ethenol for oil) or the use of black market sources (e.g., 
bootleg cigarettes.)

Poll taxes are universally hated and trivially avoided.  Their
evil twin, head taxes, are likewise hated and only enforceable
with mandatory universal identification.  (In two months, the
Mafia will be selling perfect forgeries supplied by the ChiComs.)

If I were the government, I'd tax realty as my primary or only
source of income.  It *appears* "progressive" so it appeals to
the lower class, but it is passed along to everyone in the form
of higher commodity prices and rents.  Realty can't be picked up 
and moved to another jurisdiction like personal property or
people, so it is easier to hold as a tax hostage by government.


 S a n d y

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

At 11:47 AM -0400 7/30/96, Sandy Sandfort wrote:
> If I were the government, I'd tax realty as my primary or only
> source of income.  It *appears* "progressive" so it appeals to
> the lower class, but it is passed along to everyone in the form
> of higher commodity prices and rents.  Realty can't be picked up
> and moved to another jurisdiction like personal property or
> people, so it is easier to hold as a tax hostage by government.

Sometimes, in my wilder moments, I think about it this way: Agriculture
created cities, where the "government", actually large landowners, relied
on implicitly forcible payments-in-kind of agricultural produce.
Industrialism (Maybe. Maybe printing did.) created nation states, which
rely on forcibly obtained taxes on cash-flow and financial assets. Maybe,
in a financial cryptography -enabled geodesic economy, cashflow and
financial asset taxation become impossible as a revenue source for anything
but the propigation and/or regulation (probably private) of cashflows and
financial assets themselves ;-).

The phrase "Government services" becomes exposed for the oxymoron that it
really is under this scenario. There'll be no way to compel payment for
these "services", so they'll be forced to prove their usefulness in a
market of some kind. They'll have to earn their money the old fashioned
way.

I expect that large economic entities may exist, the way cities and
nation-states do, but they won't be geographic in nature, because location
ceases to be as economically important as it is in agriculturalism, where
land is the source of all wealth, or as it is in industrialism, where
actual physical positions in distribution and information heirarchies are
so important. (The three laws of retail, and all that...)  It's even hard
for me to see large permanent entities as salient features of such an
economy. That is, each entity will be more like an ad-hoc partnership of
other smaller entities, which goes away after its specific financial
purpose has been completed. We're experimenting with those "virtual"
organizations now, and the word "syndicate" will probably reemerge as the
dominant way of doing larger business projects. The financial and
entertainment markets work this way a lot, and, even though large
corporations exist in those markets, lately there's been a proliferation of
smaller and smaller firms as information technology enables their creation.

Permanence is a function of physical reality, and information, because it's
not physical, is not permanent. It is always in the process of becoming
something else.

So, real estate taxes may be the only thing left, but they might be used
for really trivial stuff, like very local roads, infrastructure (dark fiber
maintenance? :-)), etc., and not much else. Kind of like local irragation
committees in third world countries (or New Mexico ;-)) devolved from the
water-monopoly "states" of places like ancient Mesopotamia, Egypt or China.

Cheers,
Bob Hettinga



-----------------
Robert Hettinga (rah@shipwright.com)
e$, 44 Farquhar Street, Boston, MA 02131 USA
"'Bart Bucks' are not legal tender."
                -- Punishment, 100 times on a chalkboard,
                       for Bart Simpson
The e$ Home Page: http://www.vmeng.com/rah/

Igor Chudov @ home wrote:
> 
> Hi
> 
> Suppose that digital cash becomes easy enough to use and becomes the
> mainstream medium in most [or at least many] economic transactions.
> 
> The question is, how can the government TECHNICALLY collect taxes?
> I do not mean to start `libertarianism vs. socialism' discussion, I
> am more interested in the technical aspects of tax collection when
> transfers of money are protected by strong crypto..
> 
> Let's say, maybe this tax would work: every time someone verifies that
> a piece of digital cash is valid, s/he has to pay the government a little
> percentage of the amount. Since digital banks are easier to control than
> other participants of the market, this kind of tax legislation is easier to
> enforce.
> 
> Of course these banks may be offshore, and then such collection
> becomes problemstic.
> 
> Another alternative that I see is property taxes and poll taxes,or
> taxes on some commodities such as oil. But incomes seem to be hard to
> track.
> 
> What else?
> 
>         - Igor.

Governments consume a certain percentage of their nations gross
domestic product. They will do whatever it takes to make sure
their "cut" doesn't go down.

The world will never live on information alone. There is always going
to be a need for physical transactions. The government will just raise
taxes on anything tangible. The lower class will end up paying a larger
percentage of taxes because they utilize information/service 
technologies less then the middle and upper classes. The government and
its "distributed wealth" ideals, will raise property taxes to try to
even the load over the populace.

Another idea is that the government will start taxing shipments. You
buy a CD with your e-money, but it still has to be shipped. They can
force the shipper to declare the value of the contents and collect the
tax when the box arrives at your doorstop. This would be very hard to
implement, but I wouldn't rule anything out at this point.

When information and service becomes untaxable, you will see some very
creative new taxes emerge. I have an idea for fully anonymous, offshore
accountless electronic cash, but feel that the effort to implement it
might be futile if the government were to ban any such successful
technology.


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