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Taxation Without Taxation

Don't pay taxes and fund the government
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No, not an anti-tax rant, despite the source, and I believe a genuinely novel idea -- plz read on.

Recently I've been working on the completely insane proposition of properly calculating capital gains on cryptocurrency transactions. While not a raving pro-crypto fanatic, I do believe there are multiple important use cases for cryptocurrencies, and I do believe some flavor of the ecosystem will survive (even beyond Bitcoin itself).

For a variety of reasons, chief among them the anonymity sought by the original developers of the various blockchains, one of the harder things to know accurately is the cost basis for any crypto asset. That is because the ownership of a piece of crypto can shift from wallet to wallet (of the same or multiple owners) after the original purchase, and no one knows whose wallet corresponds to which (if any) human. Properly calculating capital gains (or for that matter investment return rates) without cost basis is of course impossible.

This got me to thinking that many investment managers (Wall St. Firms, Hedge Funds, etc), charge their fees based on the amount of Assets Under Management, rather than how it used to be, based on the number of trades etc.

That further got me thinking that federal governments can kill many, many birds with one stone by STOPPING the taxation of all income, including capital gains, and instead taxing assets under management. This would seem to have the nice corollary of at the very least reducing the ability of the rich to get richer (i.e. if you have a million dollars in the bank this year and you didn't make any additional money and didn't spend any money, you'll still have less next year because of taxes. You would avoid all shenanigans with year end by simply using a high water mark balance as the point for the year, or a continuous draw every time your balance changed). For people who cannot hold a balance (for example living paycheck to paycheck or simply spending everything) it would be calculated based on money flowing through the account. Or likely a combination of both covers everyone.

And then, that got me thinking that the government does not have to do EVEN that. It simply can -- knowing the amount of money in the money supply (the total # of currency in the banks) -- wait for it -- PRINT the amount of additional money that would be required to cover inflation PLUS the tax rate.

So in other words, you could eliminate ALL TAXES WHATSOEVER -- and simply increase money supply by a proportion equivalent to the tax rate -- and then promptly destroy said money when it is spent (let's not worry about deficit spending for now)

So no tax reporting, and no tax collection, at all! If the government is supposed to collect some percent of GDP as taxes, instead it simply prints that amount, cheapening the purchasing power of the saved money by the same amount without having to in any way process taking it away from people.

Now wait, you say, wouldn't this lead to hyperinflation? If the tax rate is 10%, does that mean there's 10% more money each year?

Well, first of all there's more money each year anyway already. The money created would ONLY be covering the total tax burden owned -- it would not include money in non-taxable entity accounts such as the government itself.

Let's take an example where someone makes $100,000 a year today, and has a 25% tax rate, so they take home 75K, and pay 25K. Instead, they would keep all 100K, perhaps saving 25K a year, perhaps spending it. Either way, their shared tax burden would still somehow correlate back to 100K, and if they are saving that entire 25K from now on, and the balance grows, then more.

But nothing is ever taken from them. If the the amount of money they need to generate for the govt. is 25K a year, then we can back calculate into the # of dollars the govt can print to account for that to reduce their purchasing power by that 25K a year -- then total it up for all citizens

How do we deal with the purchasing power of the relative poor being decreased? Well, they get money from the govt. now (ostensibly from the collected taxes) -- the same process can continue so they can be partially or fully compensated for the loss of their purchasing power by getting some from govt.

Key here is no reporting of taxes, no collecting of taxes.

Anyway, sounds a bit crazy, and certainly not modeled, but figured it might generate an interesting discussion.

theircompetitor, Jan 08 2019

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       Unfortunately, since governments are owned and run by rich people, it would be impossible to implement.
8th of 7, Jan 08 2019
  

       This is a bit like an updated version of georgist or physiocrat economics (where land is taxed, not income), but with a more elegant "collection" mechanism.   

       The trouble with the collection mechanism is, taxation by inflation only works for cash and fixed- income assets, excluding those in foreign currencies. All other forms of asset would simply have their nominal value inflated, wouldn't they?
pertinax, Jan 09 2019
  

       //promptly destroy said money when it is spent (//   

       Huh? So if I work for the government I get a paycheck, but then my paycheck is revoked?
Voice, Jan 09 2019
  

       This is just crazy enough to not work!   

       Wait... I come from a country where its citizens have been conned into volunteering to pay income tax only until our portion of the bill for our WW2 effort gets paid, so maybe it would.   

       Ah, this is one of those Ponzi jumps the shark episodes...   

       What [pertinax] said. Most rich people have the majority of their wealth stored in things (including companies), not cash, s they are immune to inflation. I'd say the second half of this idea is completely unworkable for that reason. The first half of the idea: taxing assets, might have some merit, but is possibly more difficult to implement than an income tax, especially if you try to make it progressive.
scad mientist, Jan 09 2019
  

       Since the Nixon decoupled the currency from any actual physical basis (and subsequent following of the lead by most other governments) this is precisely how the world's governments have been keeping afloat without any major wars for the last 50 years.   

       Despite one or two key blips, it's probably fair to say it's been quite successful - though much political power has since been wrested from governments into the technocracy of the bond-markets (forget worrying about trans-national bodies like the EU stealing your "sovereignty" it was sold long, long ago to the money-lenders) who today provide, through the financial system, an effective leash against the most profligate and populist of behaviors - at least to any government operating a deficit.   

       Implicit taxation through inflation has lead us to where we are today, but it may be, that with higher-than-ever property (real-estate) prices and an effective cap on traditional wage-growth for a generation, that people are waking up to this sleight-of-hand.   

       Making it explicit would be more honest, certainly.   

       In the meantime, figuring out exactly what the money's been spent on would be a good idea, so that when the poo hits the air-conditioning, and the inevitable revolutionaries start lining people up against the wall, someone's got a convincing answer.
zen_tom, Jan 09 2019
  

       I don't think anyone is "immune" to inflation. As to the issue of hard assets or stocks, etc -- this scheme can certainly be expanded to cover things like networth calculations.   

       To me the key challenge is the circular (recursive) issue of folks at the bottom, not so much inflating to reduce the purchasing power at the tob
theircompetitor, Jan 09 2019
  

       If you can transact in a currency other than the one being inflated, then yes, you're immune to inflation. You could decide to store your wealth in real-estate, equities, spaceships and butter-ghee futures, and as long as you didn't hold your cash, or have a fixed income in the inflated currency then you'd be immune and free from any tax-burden. This is why once you're rich enough to operate across borders, you've essentially won the game and can start fiddling about in international lobbying, diamond-mine interests and social- media manipulation.
zen_tom, Jan 09 2019
  

       I'm not aware of anyone sufficiently rich to not have bank accounts of some sort. This is not about individuals who are not subject to taxation, for instance citizens of other countries residing abroad. I don't see how anyone accessing the banking system so they could be counted avoids the fate of being inflated, if their purchasing power is getting reduced.
theircompetitor, Jan 09 2019
  

       Inflation only applies to money at rest in a specific currency - so if you've one currency that's losing value, and you choose store your wealth in another stable currency or asset, then, if forced to purchase anything in the inflating currency, quickly fund the purchase-price via a one-off foreign-exchange trade, then you've bought the goods for a value that (for you) was effectively unaffected by inflation (assuming FX-rates reflect the relative values of the currencies involved)   

       The fx-rates mean your stored currency doesn't get inflated, its purchasing power increases as the inflating currency becomes worth less and less.   

       So it's not a requirement that you avoid bank accounts (or move abroad) you just have accounts/assets denominated in different currencies.   

       This "flight of capital" is the problem associated with inflation and "money printing". In the past, governments so-pressed have cracked down on the free movement of capital and the forced nationalisation of gold for example, but that would be a big deal in this day and age of electronic banking and global finance.
zen_tom, Jan 09 2019
  

       thanks for the education on the subject. I guess in dealing with doing crypto taxes for 2,000 currencies and working on Wall St for 20 some years, I missed the multiple currency point.   

       As a US citizen, can you avoid cap gain taxes if you sell a chalet in Switzerland? I believe not.   

       As a US citizen, would the govt find out if you deposited more than $10K (or the equivalent amount in Euros) into Deutch Bank or Banco Popular, even if the account is hosted outside the States? How about if you violated Iranian sanctions using any bank on the planet?   

       The answer is yes.   

       Nothing in this scheme prevents the govt from calculating the network or various holdings of all US citizens, in whatever denomination at the point of calculation. In terms of the potential problems with this scheme, what you're calling out would be a pimple on a dog's ass
theircompetitor, Jan 09 2019
  

       I was taking my cue from your line:   

       //Key here is no reporting of taxes, no collecting of taxes.//   

       And either the US government is going to track people's taxes, or it's not. In my mind, the main benefit of the idea is the govt wouldn't have to worry about investigating anyone's tax affairs - nice idea - it's clean, and elegant - but as I think we're agreed in saying, requires restrictions on capital flows in order to close the most gamable loopholes.   

       I think a similar issue arises with the Minimum Basic Income idea - which again, I think is clean and elegant, but which has problems caused by people having the freedom to move themselves and their capital across borders (both inward and outward).   

       Whilst not inalienable rights, I can't shake the feeling that having the freedom to move, and being able to take my assets with me are two hugely important sets of rights - but I do find it extremely interesting that they stand in the way of a great deal of progress, in terms of national governments finding ways to deliver governmental services. In there somewhere is a deep tension between rights, responsibilities and the expectation of freedom.   

       In the UK, currently, you're free to deposit and own assets almost anywhere overseas - subject to sanctions regimes etc, but are taxed on any income returning into the UK. So you would (I believe) be able to sell foreign assets for a capital gain, but only be taxed on the portion of the profit you returned onshore. You would, of course, be subject to whatever tax regime existed in the overseas territory you profited in, but this is where your Panama's and "Off-Shore" tax havens come into their own.   

       Apologies if airing my thoughts sounded as though I was trying to deliver a lecture - just trying to sincerely interact with another human being on a subject I find interesting. As you were.   

       [edit] Turns out the UK does tax foreign income in much the same way as the US does - at least on a personal level - so profits/income made abroad are to be reported and taxed as UK income for residents. I think I must have been conflating personal taxation with so-called "shell-companies" normally set up to manage private wealth by wrapping it in a foreign-registered corporate entity.
zen_tom, Jan 09 2019
  

       [zen tom] I appreciated the lecture.   

       I too like the concept of basic income for the clean/elegant aspect and hadn't thought about the "freedom to move" in relation to that.
scad mientist, Jan 10 2019
  

       it's just that I viewed it analogously to had I proposed an income tax, and you said "make sure all their income is counted",[zen_tom]. It's not a central problem of the strategy. Figuring out how to deal with people who cannot afford the loss of purchasing power feels like a much bigger problem.   

       Arguably the biggest early driver of cryptocurrency adoption has been this notion that the government CANNOT inflate you.
theircompetitor, Jan 10 2019
  

       We *could*, I suppose, implement an inflation powered basic income, and scrap almost all existing government spending in the process - if you want healthcare, pay for it with the money you're given, ditto for education (children would also be covered) and other such needs. Every citizen would have a government checking account to make the helicopter drops easy (we really need a basic bank anyway, I think, nothing but checking accounts). I don't know how much (cash) savings you'd need to actually be negatively affected - someone with the median wouldn't be affected either way, since the basic income would exactly compensate for inflation.
Selky, Jan 11 2019
  

       You couldn't cover healthcare out of basic income. Health tends to be either free (because you're not sick) or really expensive (because you are). And if you're going to ask people to buy health insurance out of their universal income from the government, I suspect you'd be better off cutting out the middleman and making the government the insurer.
pertinax, Jan 12 2019
  

       Failed to read the whole thing, failed to read all the other annos too, so just kick me in the shin if this is covered or someone already mentioned it.   

       But what happens after you've changed everything around to this wonderful new system if a bunch of people in rural Sussex or wherever decide to start using small gold tokens or chips from their local casino or something else in lieu of using the now commonly accepted crypto-currency.   

       Does that mean they won't get taxed?
Skewed, Jan 12 2019
  

       {kick, as requested}   

       See second anno, second paragraph.
pertinax, Jan 12 2019
  
      
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