Bitcoin Forum

The vast majority of people will still be assessable for income tax.  If you work for someone else, they will be required to report your income.

3. Its totally unfair. Take an unemployed person for example. Currently his income tax is zero. But your going to add the income tax of the countries wealthiest people into the basic cost of goods, so that his bread and milk costs will go way up? Thats going to benefit the high income earners greatly.

2. So you want a system where people who make money by working for a physical employer can be taxed while people who make money off of money (eg. speculators) can avoid taxes untraceably?

Freedom of speech is something most people, at least in this country, favor. But strong privacy will also reduce the power of government in less obviously desirable ways. Activities that occur entirely in cyberspace will be invisible to outsiders – including ones working for the Federal government. It is hard to tax or regulate things you cannot see.

If I earn money selling services in cyberspace and spend it buying goods in realspace, the government can tax my spending. If I earn money selling goods in realspace and spend it buying services in cyberspace, they can tax my income. But if I earn money in cyberspace and spend it in cyberspace they cannot observe either income or expenditure and so will have nothing to tax.

Similarly for regulation. I am, currently, a law professor but not a member of the State Bar of California, making it illegal for me to sell certain sorts of legal services in California. Suppose I wanted to do so anyway. If I do it as David D. Friedman I am likely to get in trouble. But if I do it as Legal Eagle Online, taking care to keep the true name – the real-world identity – of Legal Eagle a secret, there is not much the State Bar can do about it.

In order to sell my legal services I have to persuade someone to buy them. I cannot do that by pointing potential customers to my books and articles because they were all published under my own name. What I can do is to start by giving advice for free and then, when the recipients find that the advice is good – perhaps by checking it against the advice of their current lawyers – raise my price. Thus over time I establish an online reputation for an online identity guaranteed by my digital signature.

Legal advice is one example; the argument is a general one. Once strong privacy is well established, governmental regulation of information services can no longer be enforced. Governments may still attempt to maintain the quality of professional services by certifying professionals – providing information as to who they believe is competent. But it will no longer be possible to force customers to act on that information – to legally forbid them from using uncertified providers, as they currently are legally forbidden to use unlicensed doctors or lawyers who have not passed the Bar.

Encouraging inefficient conservation is a downside of such a tax, not an upside. Saving large stocks of resources at huge expense in economic efficiency when those resources become obsolete is not a benefit to anyone.

The expected future value of resources encourages the proper amount of conservation. If a resource is expected to be more valuable in the future because we will need it more then, it will be conserved out of its owner's self-interest. However, a tax like this will encourage conserving a resource even when doing so is wasteful and inefficient.

You want a tax that distorts the economy as little as possible and creates as few perverse incentives as possible.

1. I have done work for people in exchange for Bitcoin already. I don't see any of my employers reporting anything to any tax agency. Of course, the money I'm making is far too small to matter, but if a couple more security precautions (eg. public key encrypting messages) are added it would be quite possible for online workers and employers to evade government taxation entirely.

2. So you want a system where people who make money by working for a physical employer can be taxed while people who make money off of money (eg. speculators) can avoid taxes untraceably?

New blog post: http://minetopics.blogspot.com/2011/07/cryptocurrency-and-sustainable-taxation.html (http://minetopics.blogspot.com/2011/07/cryptocurrency-and-sustainable-taxation.html)

Comments (either here or there) are welcomed.

Land value cannot be hidden. How about taxing land value?

That is often the suggestion as a way to tax in an anonymous world. 

In theory, land value taxes don't cause economic distortions.  The initial creation of the land value tax system represents a transfer of wealth to the state, since it takes ownership of the land underlying every property, but that would be once off matched with a dropping of all other taxes.

In practice, the tax is likely to be assessed on the value of the property itself, not on the underlying land.  Property taxes definitely do cause distortions and create a disincentive to improve land.

For land value taxes to work, they need to be based on easy to enforce and clear rules.  Vague rules mean that people can spend money trying to get exemptions for themselves.

For example, you could break the country up into squares and work out the average property value in each square.  Each person's land value would be calculated as (land area)*(average property value in the square)*k.  K would be a constant that translates property value into land value.  K = 1/3 would probably be reasonable.  K should be the same nationwide.  Generally, high value land will have high value buildings, so on the average the 2 should be proportional.

The key to zero distortions is not getting the land value exactly right, it is creating a rule where no matter what the owner does, they pay the same tax.  If doing certain things results in less tax being paid, then that distorts in that direction.

Ideally, the tax rate should be constant, otherwise, people would lobby to try to get the rate changed, which also creates distortions.

Nothing that complicated is required. Everyone can self assess their property value and for removing the structure value, one could make insurance compulsory. In theory everyone would like minimal payouts, so they might insure their property only for stray events like getting damaged by a tidal wave, instead of a more frequent event like a fire, but that doesn't matter. What matters is that someone with a motive to under-assess the structure's value, the insurer, is agreeing on the structure value.

3. Its totally unfair. Take an unemployed person for example. Currently his income tax is zero. But your going to add the income tax of the countries wealthiest people into the basic cost of goods, so that his bread and milk costs will go way up? Thats going to benefit the high income earners greatly.

Land value cannot be hidden. How about taxing land value?

That causes horrible economic inefficiency as it massively rewards any processes that requires little or cheap land over processes that requires more or expensive land. You want to see the family farm go away forever, that's the way to get rid of it.

It also makes holding resources much more expensive than consuming them. So this causes the reverse of the problem the tax suggestion in the original post caused. People will rush to get rid of oil, gas, coal, and other resources because the consumption will be free but the keeping will be taxed.

Interesting idea.  So, everyone states the buildings value and total property value for their property, in their tax returns.

Anyone (or maybe just the government) can buy the property from them at their stated total property value.  This would prevent understating of the property value.

The max that can be paid out in an insurance claim is the buildings value.  This is less clear cut.  A business could self insure for a portion, or all, of its insurance and then understate the buildings value.

One problem is that with high land value taxes, the property value would be equal to the buildings value, since the land tax would eliminate the value of the underlying property.

Horrible inefficiency is only from the perspective of today's standards of taxation and valuation. There are many advantages of land taxation that outweigh the cost of the extremely intrusive mechanisms and the deadweight loss that income and excise taxes require and have. In a society with a large land tax, every process will be geared towards maximum efficient usage of natural land and urban land.

Taxation has a very long history as a practice, and the standard way of handling the problem mentioned (the family farm, the homestead) is a standard deduction.

People will only get rid of resources that they cannot utilise. Also, if people got rid of land and resources, then the price of natural resources fall, which means more of the wealth share shifts towards labour and capital. (The georgists utilise a 3 factor model - land, labour and  capital). Higher wages and higher return to capital is what is expected by development.

I don't understand why it will be efficient. It seems to me that it will be horribly inefficient. If I can half my taxes by using half as much land, won't I do that even if it's quite inefficient?

You start making those things tax free and your rate will have to be extremely high. That will mean the harm you do to everything else will be even higher.

Which means the tax rate has to go up even more, creating even more inefficiencies in land use.

You want taxes that don't distort economic incentives.

I don't deny that there will be an initial stage of re-adjustment, but then all capital, land and labour combinations will settle after a while. You need a minimum of urban land to do your work. Your decisions are made on the margin. Also, please note, we are discussing a structure that has already been disrupted by today's taxes. Are you ignoring today's distortions?

Everyone will get a standard deduction. That is true of today's income tax as well. We are talking of replacing those taxes.

The land tax is the least distortionary of all taxes.

There's no such thing as sustainable taxation. As the government continues to grow its odious debt, it will require more funding. A government never remains small but will continue to absolute tyranny or implosive failure.

How do governments with net savings (i.e., negative net debt) fit into your worldview?

http://www.economist.com/blogs/dailychart/2011/07/government-debt

There question is what will be left when the re-adjustment is done. I suspect that it will be horrible. As people reduce their land use, the tax rate will have to go up, pushing people to reduce their land use further. The net result will be huge amounts of wasted resources because the tax system has made it so inefficient to use them.
I don't ignore today's distortions, but an income tax or VAT distorts an awful lot less than running a modern government entirely on land taxes.

That's not true of today's income tax because it doesn't push people very hard in any particular direction. A land tax will push people hard to use less land.

I can't see how that could possibly be true. Why doesn't is tremendously preference economic activity that doesn't require the use of lots of land over economic activity that does? And how does an income tax or flat consumption tax distort anywhere near that much?

With high land value taxes, the usage value of the property will not go away. The big city central district will still be a place where businesses and people will want to be in. All that changes is to whom the rent goes to. Right now it goes to the banks in the form of interest for home/commercial loans. In a world with bitcoin and land taxes, it will go to the local government.

How do governments with net savings (i.e., negative net debt) fit into your worldview?

http://www.economist.com/blogs/dailychart/2011/07/government-debt

These "honest nodes" uphold the rules outlined by Satoshi. This could change in the future, if the miners feel that for whatever reason that it is best to extract a 'tax' from transactions then the definition of a honest node may change. This could mean that the block-chain in the future will fork and have some sought of taxation. Blocks that have non-taxed transactions will not be accepted.