From: Sandy <72114.1712@CompuServe.COM>
Date: Mon, 17 Jan 94 10:36:06 PST
To: <cypherpunks@toad.com>
Subject: CRYPTO & TAXES
Message-ID: <940117182730_72114.1712_FHF29-1@CompuServe.COM>
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  SANDY SANDFORT               Reply to:  ssandfort@attmail.com
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C'punks,

It might look as though Duncan, I and others are piling on Hal
Finney.  If we are, it's because the topic of the technological
obsolescence of government is near and dear to our hearts.  We
aren't just arguing to argue, but rather believe what we are
saying with all our hearts.

I believe Hal is completely sincere in his skepticism.  I also
believe he would like to be convinced.  Therefore, I offer my
posts to help him--and others among you, with similar doubts--to
believe.

Hal quoted me about using offshore techniques to rent cars,
homes, etc. without creating an audit trail.  He than continued:

    How does this bear on the issue of government collapse
    due to failure of income tax?  This example actually
    strikes me as an unobjectionable use of cryptography,
    one in which individual privacy is protected. . . .  I
    don't see how this brings down the government.

This bears on income taxes in two ways:  One way the government
estimates your income is based on your consumption.  If public
records show you own a big house, a nice car, a boat or a plane,
this is an indication of your income.  If it looks like you are
"living beyond your means," the IRS may conclude you have more
means than you report.  Similarly, if your *US based* credit card
records show lots of expensive purchases, the same conclusion
might be drawn.  Expenditures without audit trails help you keep
a low profile.

Owning few or no seizable assets makes you effectively immune
from serious collection efforts (i.e., "judgment proof").  Unless
you have given the government some PR reason to go after you,
they will leave you alone if there is nothing for them to grab.

What all this means is that the government is denied revenue.  Do
that enough, and the state collapses or withers away.

On the issue of "de-nationalizing" one's self, I mentioned that a
Cayman Islands corporation is a non-US citizen even if it is
owned by an American.  Hal wrote in response:

    I gather that he is suggesting that people could set up
    corporations in the Cayman Islands and somehow divert
    some of their income to them, so that the income would
    be shielded from taxes.

    Can this be done today?

Can and is.  What Shell Oil did in the Netherlands Antilles, many
folks can do in Cayman or elsewhere.  Add in strong crypto, and
the entry-level threshold drops orders of magnitude.

    Can I go to my boss and ask him to start sending my
    salary to this numbered bank account in the Cayman
    Islands, and to stop troubling the U.S. government with
    information about how much he is paying me?

When you apply new technology, you get more bang for the buck if
you avoid applying it linearly.  No, you don't go to your boss
(you still have a boss?) and ask for such an arrangement.  But
when you start your new business, you base it in a tax and
privacy haven.  In the US, you will be its loyal but "low-paid"
representative.  Over time, you convert all your work to this
sort of offshore independent contractor business.

    Why doesn't everybody do it, and why will everybody
    start doing it in the future?

Because strong crypto tied into traditional privacy techniques is
just coming on line.  When digital banking is fully deployed,
people will jump on the bandwagon because it will be cheap and
easy to do so.  They will follow their own best interests.  They
will follow the money.

    . . . I am willing to accept that people will be eager
    to avoid paying taxes, but I still doubt that
    cryptography will bring down the United States
    government.  Particularly when we consider the lack of
    sophistication (both financial and technical) of the
    vast middle class . . .

Strong cryptography will be an essential part--but not the
whole--of the solution.  Don't underestimate the ability of the
middle-class to become sophisticated if it's in their interest to
do so.  Middle-class Europeans, Asians and Latin Americans have
learned similar lessons when it became advantageous.  Americans
are no less equal to the challenge.  Plus we have an ace in the
whole.  We are heirs to the American Revolution.  The only
ideologically explicit anti-government revolution in history.
Don't count us out.


 S a n d y

>>>>>>    Please send e-mail to:  ssandfort@attmail.com    <<<<<<
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