Your Papers, Please

Network World, November 15, 1997:

 Welcome To Cyberspace. Your Papers Please? 

 About a year ago, the Treasury Department issued a little-noticed discussion 
 document entitled "Selected Tax Policy Implications of Global Electronic 
 Commerce" (www.ustreas.gov). Beavering away in obscurity, these unelected 
 technocrats have almost finished turning the broad "implications" into
detailed 
 regulations. Like most tax rulings, these regulations require no further 
 congressional action to have the force of law. So, while rehabilitated Clinton 
 apparatchik Ira Magaziner was out mesmerizing the digerati with his 
 "Framework for Global Electronic Commerce," promising free markets and no new 
 taxes, the green-eyeshade boys were quietly laying the groundwork to launch
the 
 IRS into cyberspace. ...

 The classic strategy of forcing reporting requirements on key "taxing
points," such
 as banks, clearinghouses and other financial institutions, is not likely to
work as
 the need for intermediation on the Internet will be vastly reduced. In many
ways,
 that's the whole point of electronic commerce. Any reporting burdens must be
 pushed out to the end points of each transaction. How will this be done?
This is
 where Big Brother may arrive big time. 

 Under active consideration is a plan to require taxpayers to obtain digital
IDs for all
 electronic transactions, keeping records that could be examined on audit.
The IDs
 would be issued by IRS certified agencies, subject to government developed
 standards to ensure that proper identity checks are performed before anyone is
 allowed to shop online. The IRS would enforce this by issuing its own digital
 certificates to issuers of digital IDs so that they can electronically
prove that they
 have received IRS certification. The technology they need to make this
happen is
 available. All that's missing are the regulations forcing compliance. So,
stay tuned.
 If you enjoyed the encryption key escrow debate, you'll love this one. 

 Bill Frezza

-----

On Fri, 21 Nov 1997, John Young wrote:
> This is
>  where Big Brother may arrive big time. 
> 
>  Under active consideration is a plan to require taxpayers to obtain digital
> IDs for all
>  electronic transactions, keeping records that could be examined on audit.

And what if "taxpayers" simply don't keep these records?  There have been 
quite a few things government has tried to impose on the American people 
in the last two hundred years, and have just been laughed at.  For 
example during the civil war, I believe there was a tax "imposed" which 
many people simply ignored.

> The IDs
>  would be issued by IRS certified agencies, subject to government developed
>  standards to ensure that proper identity checks are performed before anyone is
>  allowed to shop online.

This is absurd.  They can't possibly control every single one of us.  

> The IRS would enforce this by issuing its own digital
>  certificates to issuers of digital IDs so that they can electronically
> prove that they
>  have received IRS certification.

And who would they prove it to?  The IRS would have to have enough 
bureaucrats to track us all down.  - Actually they could wage a war just 
like the one with the Income Tax now.  Prosecute high-profile cases and 
publicize the hell out of them if the IRS wins, issue a gag order if the 
IRS loses.

> The technology they need to make this
> happen is
>  available. All that's missing are the regulations forcing compliance.

Regulations do not *force* compliance.  Words on pieces of paper do not 
force anything on me.

Even laws against the worst thing humans could do to each other (murder) 
do not *force* compliance.  And such laws are the ones agreed to by most 
people.  If laws that have the absolute greatest support cannot prevent 
human actions, how can you think regulations with such broad opposition 
could possibly do so?

___________________________________________________________________
Jon Galt
e-mail:  jongalt@pinn.net
website:  http://www.pinn.net/~jongalt/
PGP public key available on my website.
__________________________________________________________________

-----BEGIN PGP SIGNED MESSAGE-----

Phone Company Rep:  "What's your Social Security number?
Answer:  "I don't have one.  I'm Canadian."

Power Company Rep:  "What's your Social Security number?
Answer:  "I don't have one.  I'm Canadian."

Cable Company Rep:  "What's your Social Security number?
Answer:  "I don't have one.  I'm Canadian."

Doctor to Seasoned Citizen:  "I can't treat you privately or I'll be barred 
from taking Medicare patients for two years."
Answer:  "Sure you can.  I'm Canadian."

DCF (an occasional Canadian)

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At 05:15 PM 12/15/97 -0600, Matt Elliott wrote:
>
>For my cable company I asked why they wanted it.  For a security check when
>you call in was the response.  Does it need to be an actuall social
>security number?  No, just something you can remember when you call up.
>
>012-01-0123 I replied.  They were quite happy to use that as my "Social
>Security Number" in their database.    As far as cable goes they don't want
>your social security number.  I wonder how many others would be happy to
>substitute something.


When my cable company asked for my SSN, I told them that I was not going to
disclose it.  Of course, the refusal sent the lame-brain into a brain-dead
state. I finally volunteered that they could use my middle name for
verification purposes.  I could actually hear the "Thank you for solving
this problem!" in the employee's voice....




****************************************************************
Lynne L. Harrison, Esq.          |    Patience is a virtue;
Poughkeepsie, New York           |    Possess it if you can;
mailto:lharrison@dueprocess.com  |    Seldom in a woman;
http://www.dueprocess.com        |    Never in a man.
****************************************************************

DISCLAIMER:  I am not your attorney; you are not my client.
             Accordingly, the above is *NOT* legal advice.

I guy I know recently arrived here from Australia.  He works for a company
that maintains a database of all people throughout the world who have
telephones.  They have live connections to almost all phone companies and
provide lookups for most major government agencies.  The service is housed
here in Atlanta.  The same company also provides x.500 systems.

As he does not have a social security number, and certainly does not care
to get fingerprinted for a driver's license, he has found that he cannot
cash a check or do simple things that require a social security number.  A
side issue that relates to his visa is that he also is not allowed to leave
the country and go visit Australia for a certain period of time.


  -- Robert Costner                  Phone: (770) 512-8746
     Electronic Frontiers Georgia    mailto:pooh@efga.org  
     http://www.efga.org/            run PGP 5.0 for my public key

Some thoughts on the proposal floating around to require all electronic
transactions be identified and have IRS-endorse tags. I believe this runs
smack up against the First Amendment (and possibly the Fourth), and that
private transactions, contracts, IOUs, and such are essentially untaxable
and nonvisible to the government (practically speaking, a la the situation
today and at all times in the past).

Encrypted financial speech is indistinguishable from encrypted political or
religious or romantic speech, for example, so any requirement that economic
speech be visible to the government for taxation or regulatory purposes
would have an unconstitutional effect on speech in general.

(Not all speech is free of government regulation, obviously. Many examples
of regulated speech: medical claims, speech to minors, obscenity, and so
on. But the regulation of this speech is done "ex post facto," not by prior
restraint or official censorship (where a censor has to approve material),
and not by the government opening letters to determine if they comply with
regulations. Bear this in mind when reading the stuff below.)


At 5:21 AM -0700 11/21/97, John Young wrote:
> Network World, November 15, 1997:
>
> Welcome To Cyberspace. Your Papers Please?

> Under active consideration is a plan to require taxpayers to obtain digital
>IDs for all
> electronic transactions, keeping records that could be examined on audit.
>The IDs
> would be issued by IRS certified agencies, subject to government developed
> standards to ensure that proper identity checks are performed before
>anyone is
> allowed to shop online. The IRS would enforce this by issuing its own digital
> certificates to issuers of digital IDs so that they can electronically
>prove that they
> have received IRS certification. The technology they need to make this
>happen is
> available. All that's missing are the regulations forcing compliance. So,
>stay tuned.
> If you enjoyed the encryption key escrow debate, you'll love this one.


I doubt this would pass court challenges. Yes, I now about "the power to
regulate commerce," but consider these points:

1. There are no specified transaction forms in commerce.  (With only a few
exceptions, such as firearms purchases and some "big ticket" items like
houses, which have complicated sets of contract agreements, waivers, title
checks, etc.)

2. There is generally no requirement whatsoever for identification of a
purchaser, or a seller, for that matter. When Alice buys a disk drive, or a
box of cereal, or a carton of cigarettes, there is no governmental
requirement that she provide a True Name, or any kind of name at all.

(Caveats: It will be tiresome to repeat these caveats, so I will list them
once. Note that they do not mean there is either a requirement for identity
in transactions, or for specific forms of paperwork to be completed. Some
caveats: age credentials may be needed for some purchases (alcohol,
tobacco, firearms, R- or X-rated material, etc.). Firearms generally now
have required paperwork, restrictions, and waiting periods. Pharmaceuticals
have various ID requirements. Courtesy of the "War on Terrorism," airlines
now require ID. Etc.)

3. Many businesses have started asking for ID for more purchases (perhaps
because they think it will lessen liability problems, perhaps because they
just think that all customer-units should be tracked). An example: hotel
rooms. (Used to be one could just pay cash...now ID is demanded at some
hotels.) Some businesses are even demanding Social Security numbers. (And I
don't mean banks or other businesses with IRS reporting requirements...a
local gun range demanded my SS number for their range ID card.)

However, these ID requirements are not the norm, and most merchants will
happily take cash money for any and all purchases.

4. "Receipts" are not even required by law for transactions. Alice and Bob
can complete a transaction without any paperwork. Or with handwritten
notes. Or a Xeroxed receipt form. Or with their Palm Pilots or Newtons, or
whatever.

(Something Ian Goldberg has demonstrated with a Pilot linking to an e-cash
server in Finland, for example.)

5. Transactions may be undertaken over telephone or computer lines, perhaps
to sites in other countries. A variety of receipts, ID systems, etc.

6. True Names may be required for certain transactions so as to ensure
collection of promised monies. Especially in time-lapse payment
arrrangements. Cf. the usual debate about on-line vs. off-line clearing,
and the role of escrow agents.

7. "Money is Speech."  An encrypted message making arrangements for some
transaction may be indistinguishable from other encrypted messages. A law
requiring that all encrypted transmissions be compliant with reporting
requirements would impinge on speech. (It is not possible to distinguish
"money speech" from "political speech," or "other speech" in general. This
is a point both Michael Froomkin and I emphasized in our panel discussion
and papers for CFP '97.)

Also, certain forms of political and private speech would be chilled if
identification of all electronic transactions were to be required. Think of
someone buying information on birth control methods, or books from the John
Birch Society, etc.

(Buyer anonymity is obviously a good thing in many cases. Seller anonymity
is also a good thing in many cases. I constructed for Chaum, who has not
been supporting full, two-way anonymity of late, a plausible scenario where
seller anonymity is required to prevent government sting operations.
Purchasing porn electronically is a current example. One can imagine
Islamic countries using seller traceability in all sorts of bad ways. Only
true "Chaumian" e-cash, not the "new Chaumian" semi-traceable form, meets
goals we are interested in.)

8. Tax collection issues are generally separate from the details of the
transaction. Sales taxes (and VATs) are generally the responsibility of the
seller to collect at the time of the transaction, and to report. The seller
need not know the identity of the buyer to collect a sales tax.

(Of course, part of the reason for the "electronic ID" mentioned in the
article John Young quotes is the difficulty of collecting sales taxes
across national and state boundaries.)

9. In the U.S. at least, there is essentially no attempt to collect sales
taxes on private, two-party transactions.  This is not enforceable at flea
markets, garage sales, and other such markets, let alone in private
transactions between Alice and Bob.

10. To enforce tax collection in such areas, the state would have to become
intrusive at an Orwellian level. (And Alice and Bob could _still_ perform
"unmonitored transactions" in the time-honored ways.)

11. To enforce tax collection when Alice is using computer communications
to contact Bob in Holland, or in Japan, or in cypherspace, the state would
have to become intrusive in all computer communications.

12. The expression "to utter a check" dates back before Eric Hughes' usage
a few years ago (so I was told by M. Froomkin). A check is a kind of
promise to pay.  So is an IOU. So is a promissory (sp?) note. So are many
kinds of contracts.

The state cannot inject itself into all of these private negotiations,
contracts, IOUs, etc., at least not before they are litigated because of
some agreement. (There's a big difference between the state getting
involved because parties to a contract disagree on enforcement, and the
state becoming a third party even in early stages, or when no disagreement
about enforcement exists.)



In summary, much as the government and various advisory panels might wish
for some role in "regulating cyberspace commerce," or in taxing it, any
attempt to mandate the forms of such commerce or to require that certain
identification be used, will directly impinge on the rights of individuals
to communicate as they wish with others.

Practically speaking, the idea is a non-starter. There are so many ways to
skirt the proposed ID systems, using cut-outs, off-shore accounts,
pseudonyms, etc., that enforcement would be a nightmare.

And the system could probably be monkey-wrenched by staging some major
court challenges, where Alice and Bob "break the law" about using digital
IDs...and it turns out in court that they were discussing some clearly
protected subject, like religious beliefs, personal matters, etc.

Once again, the First Amendment provides core protections.

--Tim May

The Feds have shown their hand: they want a ban on domestic cryptography
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
ComSec 3DES:   408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^2,976,221   | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."

I wrote about this report a year ago, and took a critical look at it:

   http://cgi.pathfinder.com/netly/editorial/0,1012,31,00.html

            The sound bite would have made George Bush proud: "No New
   Internet Taxes."
        At least that's how articles in c|netand the New York Times
   described the recommendations of a Treasury Department report released
   last Thursday. The Times quoted Deputy Treasury Secretary Lawrence
   Summers as saying, "The key message of the report is, no Internet
   taxes." Indeed, the 46-page draft sketches out the Clinton
   administration's tax policy for the Internet and says that no
   additional taxes should be imposed on the Net.
       But, dear reader, you have to read the fine print. Which I did.
   That's where one finds the very clear suggestion that existing tax
   laws must be extended to encompass the Internet -- in the kind of
   clumsy and misinformed way that has typified federal forays into
   legislating online behavior. The theme of the report is clear: Since
   taxation is largely based on physical presence, the nature of the Net
   represents a threat to the taxman. Not surprisingly, the IRS could
   well return the favor by increasing its role in cyberspace.

[...]

-Declan


On Fri, 21 Nov 1997, John Young wrote:

>  Network World, November 15, 1997:
> 
>  Welcome To Cyberspace. Your Papers Please? 
> 
>  About a year ago, the Treasury Department issued a little-noticed discussion 
>  document entitled "Selected Tax Policy Implications of Global Electronic 
>  Commerce" (www.ustreas.gov). Beavering away in obscurity, these unelected 
>  technocrats have almost finished turning the broad "implications" into
> detailed 
>  regulations. Like most tax rulings, these regulations require no further 
>  congressional action to have the force of law. So, while rehabilitated Clinton 
>  apparatchik Ira Magaziner was out mesmerizing the digerati with his 
>  "Framework for Global Electronic Commerce," promising free markets and no new 
>  taxes, the green-eyeshade boys were quietly laying the groundwork to launch
> the 
>  IRS into cyberspace. ...
> 
>  The classic strategy of forcing reporting requirements on key "taxing
> points," such
>  as banks, clearinghouses and other financial institutions, is not likely to
> work as
>  the need for intermediation on the Internet will be vastly reduced. In many
> ways,
>  that's the whole point of electronic commerce. Any reporting burdens must be
>  pushed out to the end points of each transaction. How will this be done?
> This is
>  where Big Brother may arrive big time. 
> 
>  Under active consideration is a plan to require taxpayers to obtain digital
> IDs for all
>  electronic transactions, keeping records that could be examined on audit.
> The IDs
>  would be issued by IRS certified agencies, subject to government developed
>  standards to ensure that proper identity checks are performed before anyone is
>  allowed to shop online. The IRS would enforce this by issuing its own digital
>  certificates to issuers of digital IDs so that they can electronically
> prove that they
>  have received IRS certification. The technology they need to make this
> happen is
>  available. All that's missing are the regulations forcing compliance. So,
> stay tuned.
>  If you enjoyed the encryption key escrow debate, you'll love this one. 
> 
>  Bill Frezza
> 
> -----
> 
>

-----BEGIN PGP SIGNED MESSAGE-----

At 09:08 AM 11/24/97 -0700, Tim May wrote:
>Some thoughts on the proposal floating around to require all electronic
>transactions be identified and have IRS-endorse tags. I believe this runs
>smack up against the First Amendment (and possibly the Fourth), and that
>private transactions, contracts, IOUs, and such are essentially untaxable
>and nonvisible to the government (practically speaking, a la the situation
>today and at all times in the past).

Not to mention GATT and the WTO.  I don't think the US can unilaterally 
mandate a particular electronic commerce scheme and force it on electronic 
merchants in Mongolia (the freest trading country on earth these days).  

That's why when Pat said GATT would destroy U.S. soveriegnty, I said "I sure 
hope so."  

>3. Many businesses have started asking for ID for more purchases (perhaps
>because they think it will lessen liability problems, perhaps because they
>just think that all customer-units should be tracked). An example: hotel
>rooms. (Used to be one could just pay cash...now ID is demanded at some
>hotels.) 

Though most hotels actually want credit cards and believe that credit cards 
are a form of ID even though they most certainly are not.

I was asked for a picture ID before being shown an apartment.  Real Estate 
agent concern about crime directed at them?

>Some businesses are even demanding Social Security numbers. (And I
>don't mean banks or other businesses with IRS reporting requirements...a
>local gun range demanded my SS number for their range ID card.)

"I'm Canadian.  I don't have an SS#."  Works for everything that can be 
purchased or joined by Canadians in the US.

>However, these ID requirements are not the norm, and most merchants will
>happily take cash money for any and all purchases.

Very true.

>4. "Receipts" are not even required by law for transactions. Alice and Bob
>can complete a transaction without any paperwork. Or with handwritten
>notes. Or a Xeroxed receipt form. Or with their Palm Pilots or Newtons, or
>whatever.

The Finanzia Guardia (pardon my Italian spelling) (Financial Police) in Italy 
enforce the Italian requirement for receipts by fining customers who can't 
produce them.  Designed to back up VAT collection.  I noticed that most 
receipts there were generated by PCs under control of shopkeepers.  Good 
opportunities for keeping double books.  I wonder if Italy mandates POS and 
accounting software?

>9. In the U.S. at least, there is essentially no attempt to collect sales
>taxes on private, two-party transactions.  This is not enforceable at flea
>markets, garage sales, and other such markets, let alone in private
>transactions between Alice and Bob.

Though the New Jersey Gestapo *have* been attending computer, collector, etc. 
shows and demanding resale certificates, estimating revenue based on 
displayed stock, and seizing stock if not paid.  (Not recommended at gun 
shows -- which have been driven out of NJ in any case).  Hard work for the 
revenooers, though.

>12. The expression "to utter a check" dates back before Eric Hughes' usage
>a few years ago (so I was told by M. Froomkin). A check is a kind of
>promise to pay.  So is an IOU. So is a promissory (sp?) note. So are many
>kinds of contracts.

Uttering checks is from the dawn of commercial paper under common law.  I'm 
sure Eric read it in one of the banking books he likes to read.

>Practically speaking, the idea is a non-starter. There are so many ways to
>skirt the proposed ID systems, using cut-outs, off-shore accounts,
>pseudonyms, etc., that enforcement would be a nightmare.

No kidding.

DCF
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