From: hughes@ah.com (Eric Hughes)
Date: Wed, 3 Aug 94 13:39:01 PDT
To: cypherpunks@toad.com
Subject: Egalitarianism vs. Strong Cryptography
In-Reply-To: <199408031545.IAA17162@netcom11.netcom.com>
Message-ID: <9408032008.AA11522@ah.com>
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   Taxation should be small, uniform, and applied to transactions
   and never to the earnings of individuals.  

The earnings of individuals, however, _are_ exactly one sort of
transaction tax.  If you wish to make an exception for personal
income, then you wish to make an exception out of every transaction
where one of things exchanged is labor.  Therefore, you would have to
have a certificate which said "this is labor being exchanged."  My
suspicion is that the amount of the economy performed as labor would
skyrocket.

Either you tax each and every motion of money or you require an
intrusive anti-privacy system in order to determine taxability.  I can
tell you now, large interbank transfers aren't going to be taxed.
Intra-corporate transfers aren't going to be taxed.

In order to tax transactions you have to know what the transactions
are.  A transfer of money is not always a transaction.  The simplest
case is where I move money from an account at one bank to an account
at another.  That's merely a transfer; there is nothing exchanged.

   A VAT would do the
   trick nicely and could be easily built into the DigiCash system
   of the future.

Such a "compromise" (read, sell-out) could technically be built into a
transfer scheme.  Requiring VAT on all transactions through this
scheme would effectively restrict it to consumer level sales.
Businesses wouldn't use it for wholesale transfers, and individuals
wouldn't use it amongst themselves.  Thus there would be alternate
ways of transferring money, and these ways could be used to settle
transactions.

   If individuals wish to go to the trouble of
   avoiding taxes setting up secret businesses that encrypt all
   transactions, more power to them.  The small number of people who
   will bother to do this will not have any real impact on taxation.

Really?  It would be small?

Suppose we assume unrestricted encryption, as you suppose.  Assume the
USA for purposes of discussion.  Further suppose that's it's really
easy to set up a digital account, denominated in dollars, in a non-USA
jurisdiction, say, China.  All the transactions are encrypted, and
China's not talking to USA authorities--they don't have to.

I think the interesting question here is how soon the USA government
has to change its regulations because so much business (and hence
capital) has left the USA.

When capital flight for the individual is easy (and it's not right
yet), expect to see rapid changes.

Eric