even if the US tried to seize American Bitcoin-related assets and prevent Americans from transferring money directly to Bitcoin exchanges . . . [T]here are just too many ways around those laws—c.f. online poker legislation.
Online poker is not a fundamental threat to the government’s ability to collect taxes like Bitcoin is. Also, online poker as far as I know is not a generally useful tool in the commission of crimes and acts of terrorism.
Online poker is not a fundamental threat to the government’s ability to collect taxes like Bitcoin is.
Anecdotally—I’ve seen multiple British people (including geeks at Dorkbots, who I would have thought more open to libertarianism without necessarily conflating it with conservatism—admittedly, the two correlate pretty closely in the UK) utterly outraged at the prospect of various schemes for alternate currencies, open currencies, etc. Their objection? They see the possibility this stuff can’t be taxed, and get outraged at the idea, because they have a keen appreciation of just what taxes buy.
I haven’t seen Australians get anywhere near as outraged at such ideas as the British do, for example. Many British people seem to consider taxability a strong feature of a financial system. I predict they won’t like Bitcoin at all and so it won’t gain traction in the UK unless the government pushes it heavily, which isn’t going to happen.
Bitcoin doesn’t do anything to prevent taxation of real estate or otherwise conspicuous property (which, incidentally, I find to be superior forms of taxation anyway). The government says, “this land is worth X GBP, pay y% of that or be evicted”. It doesn’t need to follow trillions of transactions to get that to work. It only has to follow transactions related to transfers of such conspicuous items, which (unlike with other valuables) it has significant control over due to people’s need for government to recognize that ownership.
For example, if a gold coin is stolen from you, “good luck getting it back”, but if a horde somehow decided to “steal” your house, the government doesn’t have any problem eviicting them and giving it back to you. Since people want the government’s title registries to recognize their ownership of a house, I suspect they would play along and disclose purchase price in home sales. (And this is all assuming the government will bother to get property valuations correct in the first place...)
taxation of real estate or otherwise conspicuous property (which, incidentally, I find to be superior forms of taxation anyway)
What are the examples you’re thinking of of countries who get the major, or even a substantial, proportion of general revenue from land taxes rather than income and/or sales tax?
It’s a state, not a country, obviously- but until recently New Hampshire had not sale or income tax. The government was funded almost exclusively by real estate taxes and government run liquor stores.
None, but it becomes a bigger fraction as transactions become easier to hide. This phenomenon is mentioned in an article by Paul Birch and my nemesis. (Edit: actually, that article doubles as a warning of how governments are likely to respond to the difficulty of monitoring transactions, and it’s neither pleasant, nor the kind that brings about revolutionary change.)
The reasons I had for deeming it superior are that:
It’s more transparent and hard to privately evade.
It doesn’t require extensive monitoring of all the transactions in the economy.
It doesn’t punish people for engaging in Pareto-optimal transactions (working for someone, buying something, etc.)
That’s one thing that (i think) most economists do agree on: the first best tax scheme is a land tax scheme—on the value of the land, not the value added (by building houses, apartment buildings, or skyscrapers).
This is politically infeasible and measuring the value added is difficult, so the second best most economists push for (i think) is a sales tax which at least doesn’t discourage productive behavior.
The income tax, on the other hand, is just a terrible idea.
Many economists do support the land tax, but think it is too low to support government functions. I think a better criteria is—restrict the government only to the extent that you can support with a land tax, since a land tax is basically the approrpriation of a positive externality(civilization all around you)
When the tax approaches the rent of the property, the capitalised land value drops to zero. If the land tax is based on percentages, you’ll have the rate escalating way beyond 100%. No problem for homo economicus, but most real world people would be shocked by seeing property tax rates of 100000%.
I’m not sure I agree. Firstly, I bet that people have laundered plenty of money using online poker, and failed to report taxes on a lot of it, too. (Although obviously there’s a difference in scale between a proposed new replacement currency and poker players’ chips, and Bitcoin’s anonymity makes it much easier.)
Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments? Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion. I don’t see why people would be more likely to cheat if they were transacting in Bitcoin instead of cash.
Consider also the USG’s attempts to enforce IP laws. Lots of sound and fury, but totally ineffective so far in actually curbing copyright infringement by individuals. And you know a lot of lobbyist money must be going towards trying to get those laws working. If people ever care about using Bitcoin as much as they care about downloading an album quickly and easily, then it seems to me that government is in trouble.
Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion.
Taxes work because people like me—highly-paid middle-class employees—find them almost impossible to dodge. Everyone else is the fluff on the side—it’s PAYE (pay-as-you-earn, where taxes are withheld from your earnings) employees who are the backbone of government revenue. And, increasingly, sales taxes. In both cases, the pressure point is businesses, of which there are far fewer than there are citizens.
Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments?
Really? OK, I will assume you’re serious and not joking. A check is drawn on a bank or savings and loan or such, and banks, etc, are heavily regulated and audited by government.
As for cash, the U.S. government makes it inconvenient to pay someone or be paid by someone in cash with “Know Your Customer” banking regulations. They try to make it so that the inconvenience and risk increases at least linearly with the amount of cash involved.
Copyright infringement and gambling do not have the potential to seriously reduce governmental revenue. Consequently, the most competent bureaucrats have not been assigned to controlling those things like they have or will be assigned to controlling Bitcoin.
The U.S. response to infringement has been conducted mostly by the legislature and the judical branch. It would be a lot more effective if the most competent parts of the executive branch, e.g., the Secret Service and the Treasury Department, made it a priority.
Disclaimer: I haven’t studied Bitcoin so these comments should be taken as my rationale for not making the effort to study it.
I was serious, but on reflection, I agree—it’s easy to audit checks, since they go through a bank. You may be right about how large a threat to taxation a strong Bitcoin would be.
They try to make it so that the inconvenience and risk increases at least linearly with the amount of cash involved.
Linearly? You don’t have to go up all that far on a linear scale before you reach 100% chance that you will be caught and receive the maximum punishment allowed by law!
I agree you cannot make risk linear with dollars. What I tried to say is that they try to make inconvenience linear with dollars, so that one shouldn’t generalize from the fact that one can take a few 1000 out of the bank in cash and put it in again a few months later without anything happening.
Well, even that’s not right, but I do not have time to be more articulate right now.
Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments? Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion. I don’t see why people would be more likely to cheat if they were transacting in Bitcoin instead of cash.
Cash is pretty anonymous, but also pretty useless for paying people over the internet. Cheques typically leave an audit-friendly paper trail.
Online poker is not a fundamental threat to the government’s ability to collect taxes like Bitcoin is. Also, online poker as far as I know is not a generally useful tool in the commission of crimes and acts of terrorism.
Anecdotally—I’ve seen multiple British people (including geeks at Dorkbots, who I would have thought more open to libertarianism without necessarily conflating it with conservatism—admittedly, the two correlate pretty closely in the UK) utterly outraged at the prospect of various schemes for alternate currencies, open currencies, etc. Their objection? They see the possibility this stuff can’t be taxed, and get outraged at the idea, because they have a keen appreciation of just what taxes buy.
I haven’t seen Australians get anywhere near as outraged at such ideas as the British do, for example. Many British people seem to consider taxability a strong feature of a financial system. I predict they won’t like Bitcoin at all and so it won’t gain traction in the UK unless the government pushes it heavily, which isn’t going to happen.
Bitcoin doesn’t do anything to prevent taxation of real estate or otherwise conspicuous property (which, incidentally, I find to be superior forms of taxation anyway). The government says, “this land is worth X GBP, pay y% of that or be evicted”. It doesn’t need to follow trillions of transactions to get that to work. It only has to follow transactions related to transfers of such conspicuous items, which (unlike with other valuables) it has significant control over due to people’s need for government to recognize that ownership.
For example, if a gold coin is stolen from you, “good luck getting it back”, but if a horde somehow decided to “steal” your house, the government doesn’t have any problem eviicting them and giving it back to you. Since people want the government’s title registries to recognize their ownership of a house, I suspect they would play along and disclose purchase price in home sales. (And this is all assuming the government will bother to get property valuations correct in the first place...)
What are the examples you’re thinking of of countries who get the major, or even a substantial, proportion of general revenue from land taxes rather than income and/or sales tax?
It’s a state, not a country, obviously- but until recently New Hampshire had not sale or income tax. The government was funded almost exclusively by real estate taxes and government run liquor stores.
None, but it becomes a bigger fraction as transactions become easier to hide. This phenomenon is mentioned in an article by Paul Birch and my nemesis. (Edit: actually, that article doubles as a warning of how governments are likely to respond to the difficulty of monitoring transactions, and it’s neither pleasant, nor the kind that brings about revolutionary change.)
The reasons I had for deeming it superior are that:
It’s more transparent and hard to privately evade.
It doesn’t require extensive monitoring of all the transactions in the economy.
It doesn’t punish people for engaging in Pareto-optimal transactions (working for someone, buying something, etc.)
That’s one thing that (i think) most economists do agree on: the first best tax scheme is a land tax scheme—on the value of the land, not the value added (by building houses, apartment buildings, or skyscrapers).
This is politically infeasible and measuring the value added is difficult, so the second best most economists push for (i think) is a sales tax which at least doesn’t discourage productive behavior.
The income tax, on the other hand, is just a terrible idea.
Is this your statement or that of economists? (I ask because the rest of your post is about what economists say.)
Both, though like the other statements about what most economists think, I’ll note that I’m not super-certain.
Many economists do support the land tax, but think it is too low to support government functions. I think a better criteria is—restrict the government only to the extent that you can support with a land tax, since a land tax is basically the approrpriation of a positive externality(civilization all around you)
Why can’t the rate just be set higher?
When the tax approaches the rent of the property, the capitalised land value drops to zero. If the land tax is based on percentages, you’ll have the rate escalating way beyond 100%. No problem for homo economicus, but most real world people would be shocked by seeing property tax rates of 100000%.
I’m not sure I agree. Firstly, I bet that people have laundered plenty of money using online poker, and failed to report taxes on a lot of it, too. (Although obviously there’s a difference in scale between a proposed new replacement currency and poker players’ chips, and Bitcoin’s anonymity makes it much easier.)
Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments? Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion. I don’t see why people would be more likely to cheat if they were transacting in Bitcoin instead of cash.
Consider also the USG’s attempts to enforce IP laws. Lots of sound and fury, but totally ineffective so far in actually curbing copyright infringement by individuals. And you know a lot of lobbyist money must be going towards trying to get those laws working. If people ever care about using Bitcoin as much as they care about downloading an album quickly and easily, then it seems to me that government is in trouble.
Taxes work because people like me—highly-paid middle-class employees—find them almost impossible to dodge. Everyone else is the fluff on the side—it’s PAYE (pay-as-you-earn, where taxes are withheld from your earnings) employees who are the backbone of government revenue. And, increasingly, sales taxes. In both cases, the pressure point is businesses, of which there are far fewer than there are citizens.
I hadn’t seen that term, so for others who were in my position,
PAYE = Pay as you earn (presumably payroll taxes)
Yes, sorry, clarification added.
Really? OK, I will assume you’re serious and not joking. A check is drawn on a bank or savings and loan or such, and banks, etc, are heavily regulated and audited by government.
As for cash, the U.S. government makes it inconvenient to pay someone or be paid by someone in cash with “Know Your Customer” banking regulations. They try to make it so that the inconvenience and risk increases at least linearly with the amount of cash involved.
Copyright infringement and gambling do not have the potential to seriously reduce governmental revenue. Consequently, the most competent bureaucrats have not been assigned to controlling those things like they have or will be assigned to controlling Bitcoin.
The U.S. response to infringement has been conducted mostly by the legislature and the judical branch. It would be a lot more effective if the most competent parts of the executive branch, e.g., the Secret Service and the Treasury Department, made it a priority.
Disclaimer: I haven’t studied Bitcoin so these comments should be taken as my rationale for not making the effort to study it.
I was serious, but on reflection, I agree—it’s easy to audit checks, since they go through a bank. You may be right about how large a threat to taxation a strong Bitcoin would be.
Linearly? You don’t have to go up all that far on a linear scale before you reach 100% chance that you will be caught and receive the maximum punishment allowed by law!
I agree you cannot make risk linear with dollars. What I tried to say is that they try to make inconvenience linear with dollars, so that one shouldn’t generalize from the fact that one can take a few 1000 out of the bank in cash and put it in again a few months later without anything happening.
Well, even that’s not right, but I do not have time to be more articulate right now.
Cash is pretty anonymous, but also pretty useless for paying people over the internet. Cheques typically leave an audit-friendly paper trail.