A Cyber Currency for Peer Based Taxing of Externalities

Taxation, Distributed

Some Facts About Taxes

Most people I talk to about financial and political issues are very interested in taxes. MMT claims that the purpose of taxes, for monetary sovereigns, is to establish a universal need for state currency, and thereby establish a currency standard. Once a currency is the standard, inflation is the the only limit on fiscal spending of state currency by government.

If this narrative is correct, then income taxes are self defeating, as income is a function of fiscal programs in the first place. Every dollar spent, either comes from government directly, or indirectly serves to support someone performing government fiscal programs. Taxes can be considered a “negative fiscal program”.

If you are taxing income, your left hand doesn’t know what your right hand is doing.

It can be argued that taxing a percentage of all non-government spending, dilutes the quantity of currency each time it is spent, and results in direct fiscal spending having a greater impact on economic activity, assuring that government’s fiscal programs are fulfilled with the highest priority. Such a policy could make sense in specific scenarios, where we want government to proactively direct our economic and social activities.

But this is not what the income tax does. Income is a culturally established and legally defined distinction between personal consumer spending and commercial transactions. Because of this distinction, different rules are applied to spending for personal needs or commercial development. Commercial costs aren’t taxed, and thus often take precedence over spending for personal needs. This is exactly backwards of what a sensible relationship between personal and commercial spending would look like. We should work first to fulfill personal needs, and then spend what’s extra for commercial development.

The source of financial inequality in our modern world is our cultural practices of finance, commerce, and property rights. These practices are in part influenced by the income tax, and it’s social effects on our financial culture are greatly aggrieved by the so called “progressive” structure of income taxes. Progressive income taxes legitimize our compulsion to compensate sports stars, celebrities, CEOs, and others, with hugely disproportionate salaries. Without a strong progressive income tax structure, such disproportionate compensation levels would be ridiculous and unnecessary, and we would never tolerate them socially. Progressive income taxes give us an excuse to play this maddening and ridiculous (anti-)social game of popularity and money mongering.

Furthermore, because of the income tax gradient, people must secure control of a greater amount of socially valuable resources to achieve an appreciable level of financial income and financial security. It preserves the marginal incentives to purse a greater and great level of control of wealth.

Why are currencies valuable?

MMT claims that taxes are the reason a currency has value, but this is actually incorrect, in a subtle way. The qualitative reason a currency is recognized and used is completely different from quantitative factors which affect price levels and relative purchasing power. Price stability helps maintain public confidence in a currency and the political authority of the issuer, but it is not the reason a currency is valued or used in the first place.

The qualitative reason a currency is valued is the social recognition of the issuer’s influence and/or authority over resources.

Problems With The U.S. Dollar

In the case of the U.S. dollar, there are actually two distinct the reasons U.S. dollar is recognized, depending on the context. Domestically, it is because the U.S. federal government has political and legal authority over accounting and finance. Internationally, it is because the U.S. government, along with corporate entities and the military industrial complex, pursues global hegemonic power and dictates the terms of international trade.

Domestically, this creates problems in our banking systems, as banks ideally should be local institutions of social credit and resource management, with only very specific and limited regulatory accountability to federal government. Federal government should exercise authority over international trade, but only trade coming into or leaving our country.

Without Taxes, Where Does All The Money Go?

This is a good question, as a quantitative build-up of money can lead to less labor participation, or potentially drive inflation.

It is human nature to be lazy and selfish. Without taxes, financially savvy individuals can build up a lot of savings, or create easy to maintain income streams. This effectively mean they wouldn’t have to work or even think about money.

While this is a refreshing reversal of the financial inequality we see today, where individuals achieve wealth by competing for control of essential resources and political influence, it is still not a very healthy situation. What if our most capable and brightest people drop out of labor participation and the financial development of society simply because it is so easy for them to secure the incomes they need? This could result in a labor force that was mostly composed of people who struggle with personal finance, and/or those who have low paying jobs, either because they struggle to achieve adequate productivity levels, or because they have trouble securing compensation commensurate with their productive value.

There is one simple and easy alternative to taxes: prices. A tax is an unavoidable, politically imposed, accounting burden. A price is simply a social condition of resource use.

We call some things taxes, that with a little bit of tweaking, could actually just be prices. For example, you might pay pay prices to use specific amounts of land or other natural resources. What makes this different from a tax, is that it’s transactional, and directly tied to the level of resource use.

A Radical Experiment

It can be beneficial to have a mechanism for reducing the supply of a circulating asset. If this mechanism is applied to addressing damaging externalities, it counteracts inflationary effects in two ways! Both the supply of currency is reduced and actions with a negative impact on society are discouraged.

What if, instead of taxing through complicated legislative processes, anyone could tax anyone else, but it simply cost them an equal amount of money as well? This would give people an effective channel to punish externalities.

Let’s say Big Bad Corporation A, is dumping dangerous chemicals in your water supply. You could lobby, petition, and organize. But the truth is, that might not have any effect.

But if you had the power to directly deduct money from their bank account, that would wake them up pretty quickly! The would see all these negative transactions with the memo: “Toxic water dump”.

This obviously wouldn’t work with a huge amount of financial inequality. But the entire point is creating a culture of collective accountability.

But Where Does the Money Come From?

Institutions: governments, banks, businesses, or other political entities, would issuer their own assets, much as they do today. Any holder of that asset could deduct money from any commercial/public entity who operates using that asset.

No commercial entity could operate using that issued asset without a public identity subject to such social taxation.

Why then, would the commercial entities agree to accept these currencies?

Because they would attract more customers. This is a good deal for people, as it gives them political influence over commercial entities.

It’s a crazy idea

There’s a lot of details to work out, and a lot of things could go wrong, but I think any mutual tax battles would be self correcting.

My crypto-ledger system I am designing called trust-ledger, would likely serve as the technical foundation for this experiment. Let me know what you think.

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