From: Bill Stewart <stewarts@ix.netcom.com>
Date: Wed, 31 Jul 1996 08:52:45 +0800
To: cypherpunks@toad.com
Subject: Re: Taxes in the digicash world
Message-ID: <199607301939.MAA08390@toad.com>
MIME-Version: 1.0
Content-Type: text/plain


SUMMARY:   A: Quotation.  B,C,D: usual rehash   E: Interesting conclusions
A) At 06:17 AM 7/30/96 -0500, ichudov@algebra.com (Igor Chudov) wrote:
>The question is, how can the government TECHNICALLY collect taxes?
....
>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.
..
>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.

B) Basically, you can either tax income, consumption, transactions, ownership,
and the right to do business.  Ownership of land and easily traced tangibles, 
like houses and cars, still works, but isn't a big enough source of revenue 
for current government appetites, and taxing consumption (i.e. purchase) 
of these items is also revenue-limited.  US-based corporations are regulated 
- by taxing profits, they're given an incentive to report all their consumption,
generating a recording stream that fingers employees, contractors, and other 
corporations, making their incomes more visible.  Similarly, business licensing 
raises the visibility of people who might otherwise engage in profitable
services
(typically in the name of protecting the consumer through quality control), 
and often creates transaction records such as building permits.

C) Taxing bank _transactions_ isn't realistic - it encourages people to use
offshore
banks, and it's a major change in the way US taxes work.  Even with
payee-and-payer-anonymous digicash, when the digicash gets stored in an account
for translation to treecash, the bank can tell which account, though they
can't tell when and from whom you got the digicash, and if they pay interest
they must report it,
so that tells the IRS your average balance, letting them play the
traditional game of 
"you received $X in your bank account, prove that it wasn't taxable income"
(again, unless you're banking offshore.)  

D) As long as you're buying physical stuff, it's generally either small-volume 
(e.g. handicrafts and artwork) or made by corporations that are relatively
traceable,
because they're forced to report their incomes, or else it's material that's
purely black-market anyway, like dope.  But today's economy is moving away from
manufacturing and mostly into services; the low-paid stuff like lawnmowing
and babysitting helps support poor people, but isn't a big revenue impact.
The interesting problems occur when both your source of income and most of 
your consumption are communication-based intangibles - consulting, electronic 
paperwork, writing software, writing entertainment, selling
electronically-delivered
wares, laundering money, laundering software, laundering entertainment,
buying software, buying entertainment, buying consulting for your business.
Since the services and payment can both be delivered invisibly, that _can_
let lots of people get under the radar.

E) I think the battleground for taxation and control over the digital
economy will be
fought in two or three areas.  One is wiretapping, of course, to protect us from
narco-porno-taxevaso-terrorists; attempting to control the key management
structure will be a big part of this, since it lets you trace the players
as well as the money.  (Even if they don't get your private keys,
and can only force registering of, say, snail-address along with public keys,
that gives them much of the game.)  A related push is censorship, probably
with mandatory authorship identification ostensibly to enforce content
labelling.

But the other big push will be for licensing of computer practitioners and
software -
there's been some attempt at this already, partly from the serious safety
folks and
partly from the state-level business-licensing meddlers, but I think we'll
see far
more of it as the government realizes that it's a big hook for retaining tax 
visibility.  Because the software business is extremely portable and
geography-independent, much of the tracking will be from the demand side.
Software for some reasonably large fraction of use may need to be
certified by either a licensed practitioner or a corporation that can be liable.
After all, we _need_ to protect the integrity of the National Information
Infrastructure to preserve American jobs and protect our kids! 

#			Thanks;  Bill
# Bill Stewart, +1-415-442-2215 stewarts@ix.netcom.com
# <A HREF="http://idiom.com/~wcs"> 
#			Dispel Authority!