Pecunia populi

or: How I learned to stop worrying, and love a tax integrated national cryptocurrency.

Part 1: lower taxation with better government auditability.

Our current economic system has done great things for us. The device you are reading this on is one of them. But, our economic system is not a panacea. We have some real problems, which include:

• profit shifting
• cost of tax compliance
• losses due to unreported taxes
• the high cost of tax collection
• government departments failing financial audits, i.e., tax spending being unaccounted for

In this first article in the series, we are going to look at how a cryptocurrency with built-in per transaction taxation can make all these problems disappear. In fact I will argue that nation states should switch as quickly as possible to a per state cryptocurrency with built-in per transaction taxation, and we as the public should demand it, because

• it lowers tax rates significantly, and
• greatly improves government fiscal honesty (through auditability).

First, to delve deeper into the problems we are going to take a look at America as a case study. If you look at your own country you should be able to find similar data.

Profit shifting is a major problem. Multinational corporations shift profits into low- and no-tax countries, to reduce their taxes and increase shareholder value. A company like Apple paid as little as 1.9% in taxes on their profits outside the US. In America in 2012 the estimated corporate tax revenue lost due to profit shifting was between $77 billion and $111 billion. Measured against the actual corporate tax revenue of $242 billion that is between 32% and 45% of value lost. What this means for national companies and the population of a nation state, is that this increases the tax burden on them. Furthermore, with profit shifting, poorer countries lose more than rich countries, which increases the burden on those who can least afford it.

In 2012 the rate of change to, and the inherent complexity of, tax laws costs the American economy an estimated $1 trillion. Measured against the total revenue collected by the federal government in that year of $2.5 trillion, this is 40%.

On top of this it is estimated that the US Treasury annually loses out on $450 billion in unreported taxes.

The budget for the US Treasury in 2012 was $128 billion.

So let’s summarize these numbers

• profit shifting tax loss = $ 111 billion
• unreported taxes = $450 billion
• cost of collection = $128 billion

If we can reduce these numbers to zero, and measure that against the tax revenue, it results in a potential reduction of 28% in tax rates. This is a strong economic imperative to solve these problems.

To reduce taxation it is not enough to make the process of tax collection fair and effective, how taxes are spent also needs to be improved. Now I’m going to pick on the US military. The Department of Defence cannot account for
$8.5 trillion in tax money doled out to them between 1996 and 2012. If you consider the unaccounted for as losses (you should), then that amount averaged over 6 years could have decreased taxes in 2012 by 57%.

The above taken together would result in a 85% decrease in tax rate.
Just to get a real feel for that: imagine that for every $100 you paid the government last year you put $85 back in your pocket instead.

Our economic imperative has just become a very strong motivator.

So let’s see how a cryptocurrency with built-in per transaction taxation can make all these problems disappear, and reduce the taxes you need to pay by 85% :-)

Cryptocurrencies are basically the internet of money. Like cash you don’t need a bank, or another trusted third party, to transact.

I am going to use Monero as an example, because it already exists. Like cash Monero is private. That is if I pay you using Monero, then no-one else can see that transaction. So, transacting in Monero meets our current privacy requirements.

What we are going to do is imagine a Monero+ where every transaction is taxed. I.e., for every transaction x% gets paid to the government. Note that with Monero+ no-one knows you and I did business, but the government has gotten their tax payment automatically and immediately.

To implement Monero+ is “trivial”. Me paying you using a cryptocurrency is already a transaction. All we are doing is automating the addition of a third party, i.e., the tax revenue service.

This makes profit shifting impossible. Because we now automatically tax the transaction instead of the company profit. As long as we are doing business in the currency of our nation state, taxes are paid. Immediately and with zero effort.

This also reduces the cost of compliance to zero. You never need to complete a tax return ever again. Read that sentence again.

Tax interaction is now reduced to

• Those who have to pay additional taxes, e.g., tobacco, alcohol, sugar, polluters.
• Those who want to claim taxes back.

Using Monero+ there is no such thing as unreported taxes!

This also means that taxes do not need collecting. I.e., the cost of collecting taxes reduces to zero; it is built into the system. The only costs now are the deviations: those who are taxed extra and those who are claiming back.

So Monero+ gives us our 28% reduction in taxes. Because it is a cryptocurrency it can also give us the other 57% through inherent auditability.

Monero is not just like cash, because it is a cryptocurrency it is also its own complete accounting ledger. Let’s consider the Department of Defence again: They get allocated a budget in Monero+. When they get audited their Monero+ accounting ledger shows every amount spent, and the people who approved each cent. Who got paid is secret, but who paid is not. With Monero+ individuals can be held accountable. You can even make referencing invoices on Monero+ a requirement for the DoD to make the auditability really simple. If the political will exists then thieves can be easily prosecuted, and the misspent reduced to zero.

You might wonder how there can be accounting ledgers and privacy at the same time. The short answer is mathematics is amazing. If you are interested in the details please read up on the Monero website.

Please note I am not saying a nation state should adopt Monero, rather a nation state should fork a cryptocurrency like Monero and add per transaction taxation.

In conclusion: a national cryptocurrency with per transaction taxation will greatly increase our tax efficacy and efficiency, and so vastly reduce our tax burden. Monero+ would create a more honest government (if the political will exists) while we pay a fraction of the taxes we currently do. Imagine what that increase in disposable income will do for your economy. In 2012 in America, combined with the $1 trillion saved from the reduction in tax complexity, Monero+ would’ve meant a disposable income cash injection of roughly $3 trillion with zero negative effect on government efficacy.

In the next article we will investigate how Monero+ would effect our current economy, and what new financial possiblities Monero+ opens up for us.

PS. I cheated. The above tax numbers included property tax, etc. However, the reduction we calculated did not take in to consideration the higher rate of transactions vs reported taxable income which would further reduce the level of taxation. So for a back of the envelope calculation I’m going to call it quits.