This should be read along with https://news.ycombinator.com/item?id=28042185 "Wealthy Americans Targeted by U.S. in Panama Tax-Fraud Probe". The fundamental question is "should paying tax be optional for rich people?" Large parts of the crypto ecosystem believe that the answer should be "yes". The US government believes the answer should be "no".
Is privacy, or specifically the ability to earn income while concealing it, a core function?
(It's an unfortunate feature of the weightlessness of modern money, crypto or otherwise, that proportionate privacy is now hard. In the old days, if you wanted to move a lot of money, especially internationally, you had to go to a lot of physical trouble: https://www.rte.ie/news/newslens/2019/1204/1096878-poland/ ; this was hard to hide and easy to intercept. Nowadays you could theoretically move billions with a brainwallet. The binance cold wallet is twice as much as the Polish wartime gold: https://bitinfocharts.com/top-100-richest-bitcoin-addresses....
So we end up with a situation in which in order to track the large transactions a system is built which tracks all transactions.)
Contrary to popular belief, privacy is not a core function of most cryptocurrencies. Every transaction is on an open ledger viewable by anyone. If you fund an address from a regulated exchange, it's simple for the government to know who you are.
Mining is a core function. None of it works without that (or staking, which is equivalent). A miner is not able to know who you are, since the regulated exchanges are not reporting their KYC to all the miners. Making miners responsible for sending 1099s would effectively make it illegal to run public blockchains.
A miner could know who you are, though such functionality is not implemented in any of the current currencies I know of. There is no technical reason that a transaction cannot contain a cryptographically signed identifier of the sender.
A very rough sketch of such a system:
- Any exchange that wishes to offer crypto services to US citizens must do KYC according to the existing regulations.
- Those exchanges make available each day a file with all the KYC-ed wallet adresses.
- Miners can theoretically choose which transactions to include and which to reject, but at the moment the main (only?) criterion is how much fees are attached to the transaction. You could mandate that they also do a lookup into the KYC data and only accept the transaction if the sending address is present in the list.
- I could even see the SEC or some other central body (perhaps one per country) maintaining such a list, exchanges submit their lists and miner can download it. This is already done in several other sectors of the economy.
In that case, every transaction would not only be visible to everyone on a public ledger, but come with complete identification of all participants. It'd be like having your credit card and bank statements posted on a website. Any embarrassing purchases would be public, and anyone with a large balance would be a target.
And why would you do this? The KYC you're making public is already available to the government, and the on-chain transactions are already public.
Paying tax is and will always be optional for the rich. Crypto offers the middle class a chance to evade taxes as well, so lawmakers are of course far more adversarial to it than they are to the methods used by themselves and their corporate friends.
One cold hard look at https://usdebtclock.org/ is enough to convince me that paying taxes to the US government is not a moral imperative. Every penny I pay is going towards paying off a massive ever-expanding black hole of debt that is mathematically impossible to ever pay off, the government is going to spend the same amount regardless of the revenue it collects since the Fed just prints it all anyways. So what's the point in "paying your fair share" in such a system? You'd be a fool not to evade as much as you possibly can.
This misses the point: 'loopholes' often require sacrificing optionality. Most "X billionaire paid Y in taxes" have to do with _deferred_ taxes or charity, which can't exactly be spent on lamborghinis.
There are definitely bad tactics and real loopholes, but this isn't the main problem. The real problems are more subtle and they require trade-offs.
These problems won't be solved as long as the tax code remains as complex as it is.
Massive tax regulation is a surprisingly recent invention.[1]
What about the situation where they borrow against their stocks, pay some small amount of interest and then when they die all the stocks pass to their heirs after settling any remaining debt without paying any income tax?
This legislation will not raise more tax revenue like it proposes. It will stifle the US crypto industry and push it into friendlier jurisdictions. Ultimately it could end up reducing tax revenue compared to not touching the crypto industry.
Only if the government continues to insist on taxing income as a main source of income. The government could easily implement a sales tax and crypto would only be a small obstacle to enforcement. And as a bonus feature we could fire a bunch of bureaucrats too.
> Progressive taxation benefits society at large...
... claim the poor and the people who make their money off capital gains.
Who gets to decide what "good for society" means in context of taxation is possibly the most political question out there. It is not at all obvious that making the most productive people pay most of the burden gets to the best outcome.
Being highly paid or at the top of a management structure does not equal being more productive.
It is one philosophy that there exists some line, some fuzzy DMZ that gets crossed between being merely "wealthy and more prosperous than others" and obscene. Colloquially that seems to be "billionaire" but I bet a lot of people on the farther-left would define is somewhere north of $10 million.
Especially in a country so far behind the rest of the developed world with regards to access to health-care and housing for so many millions of people.
As OSS dev this very often not true for instance: there is a lot of OSS having a positive effect on a huge amount of people and yet the authors scraping by. Paying for OSS should be a tax write off aka charity. Would stimulate more people to just open source it all.
You assume that the value in this case is created merely by its existence but software in a vacuum is worthless. The value in software is also created by orgs that choose to use the software, by distribution networks. It must be reduced to practice.
As a software dev that can be a hard pill to swallow.
This is alleviated with a probate and has been studied in depth ala the FairTax. It's FUD and is holding us back.
Not to mention there are many efficiencies that come with this system which would likely cause prices to even out over time near their current levels or just slightly higher.
Sales taxes can be done in a progressive way if you calculate total purchases for the year as (reported income minus reported money added to savings).
Though, of course, you then need even more reporting than we already have, but it would have the upside of no longer disincentivizing work like the current system does, and rewarding savings over spending too.
Not sure why I got downvoted; while it's not super well-known, this is a real and potentially feasible idea that has been studied by economists and has had papers written about it. You can absolutely apply tax brackets to sales tax to avoid making it a regressive tax, it's just a little bit more administratively complex.
There are a number of reasons for your downvotes. For starters, income taxes don't disincentive work and are in fact lower now than they were during our greatest periods of economic growth.
And from the perspective of someone who actually works in tax: the "FairTax" simply pushes all the complexity to everyday transactions, instead of minimizing it to periodic transactions occurring 1-2 times a month (with reporting once a year). It would hugely disincentive paying for actual things, and artificially incentivize (untaxed) services over (heavily taxed) goods.
Moreover, the "FairTax" rate would be 30% or more on all purchases. Not only would the FairTax would obscenely regressive in effect, but a tax rate that large would push a substantial portion of the economy underground!
There's so much wrong with "FairTax" that it should be called "Ridiculous Tax."
While I agree with much of your post, current taxes on income (featuring reduced taxes on capital income, exclusion of most income from gifts/inheritances, and supplemental taxes on labor income [“payroll tax”]) absolutely disincentivize working for income if you have choices of how to get income. Now, lots of people don't have choices and are stuck with work, but that doesn't mean there is no disincentive effect.
(Of course, “treat income as income” makes this much fairer than the status quo, much less the laughably misnamed “FairTax”.)
All of those alternative sources of money require an individual to already be quite wealthy: capital income means capital assets; gifts/inheritances means wealthy family. At that point...it honestly doesn't matter how you get your money. Over my career I have provided tax consulting and compliance services to many HNW individuals, and income taxes were never once a disincentive to working. A person rich enough to choose how they earn their income works because they choose to.
(Note: payroll taxes such as FICA, etc., actually phase out pretty quickly after $100k in earnings, so they're regressive in nature. There is the high-wage supplemental tax, but this is offset by the cap on income subject to SSI tax, so workers earnings more than $140k actually pay less in payroll tax.)
That being said, I agree that capital gains should be treated as regular income (as it was historically, pre-Reagan) and that income received via gift/inheritance should not receive a FMV cost basis.
That is probably different than the incorrect argument I've often heard, that "if I get paid more and move into a new tax bracket, I'll net less money" which shows up when someone doesn't understand the concept of taxation on marginal dollars.
I think the people who argue for higher taxes on wealthier brackets also argue for capital gains to be taxed at a similar/equal rate to income.
Right, exactly. And besides the examples you mentioned, the differing income tax brackets on married couples is also a big example of this. If only one spouse is working, and the second spouse is deciding whether to get a job, then having all of the second spouse's income taxed at a higher marginal rate from the get go can easily influence people's decisions.
Note: for married couples, the tax bracket thresholds are doubled, except for the highest (37%) bracket, which kicks in for couples making more than roughly $625k but for singles at roughly $520k.
The actual effect is that you need to actually have a huge wealth disparity between partners' earnings for the so-called marriage penalty to kick-in. Fox News notwithstanding, the overwhelming majority of married couples will not see a marriage penalty.
All true, and good points. However the marriage bonus for single earners is much greater than the bonus for double earners, so if you look at it from a certain angle there is sort of a penalty for dual earners vs sole breadwinner marriages.
I think you're making some incorrect political assumptions about my views. I have no idea what this "FairTax" thing is that you're referring to, but that sounds like something pretty different from what I'm talking about.
Your parent comment described one of the proposed ways for implementing the FairTax system, in which a national sales tax would replace the national income tax.
Even if you did not mean to suggest FairTax and you mean something very different, your proposal still ends up being significantly more complicated than an income tax, since now taxpayers must track all purchases made over the year rather than the relatively limited sources of income they have. Your proposal would increase the compliance burden on buyers, sellers, and the government.
No, my comment said calculate total purchases for the year as (reported income minus reported money added to savings) which specifically does not require tracking any purchases, only income and contributions to bank/investment/retirement accounts and such.
By not tracking purchases individually, and only inferring the total amount of money spent by subtracting savings from income, you can also apply brackets to purchases, and thus avoid the regressive nature of a "simple" flat sales tax.
I don't think this would be a good idea for fairness reasons, but assuming you'd implement it this way: How would you collect sales tax if you allow completely anonymous transactions? This is already a problem with cash, it would become a bigger problem if you introduce more convenient alternatives to cash in the form of crypto.
It's a lot easier to require businesses in the country to report sales tax (of which the infrastructure is already in place and could be funded more heavily) than it is to go after individuals. Even if the business' individual transactions are in cash or anonymous.
There will always be a black market, but eventually that money has to flow back into the regular economy (food, housing, etc...) and will be taxed.
It could be done anonymously if you calculate purchases implicitly as income minus savings. This would de-anonymize savings of course, but they’re not really that anonymous right now anyway since most methods of savings have to report interest/dividends/etc.
Right, but the problem cited earlier up in the thread is that sales tax would prevent anonymous purchases; if you accept that income is not anonymous (which it already isn't), then you can still have a system with both sales tax and anonymous purchases.
Savings: unknown (held in cryptocurrency, private)
Tax: divide by zero error
Besides, doesn't the US already have sales taxes? Or are they state-only? I'm starting to favor a tax on real estate and/or land value, since that's physically impossible to hide.
> Besides, doesn't the US already have sales taxes? Or are they state-only?
State. City. County. Sub-divisions of same that are special sales tax districts and have extra sales tax applied. Not every instance of those entities applies a sales tax, but any could and many do. Basically everything except federal. The sales tax where I am, in a "red" state, is about 11% (we actually have a really high effective all-inclusive tax rate in this state, for how entirely shitty government services and infrastructure are)
> I'm starting to favor a tax on real estate and/or land value, since that's physically impossible to hide.
The challenge with that is the system for assigning value—everything else about it is easy. We already have something close to what you'd need in the US because real estate property taxes are common. That system's not perfect but it may still be good-enough, despite its flaws. It seems to work kinda OK. That might change if that became a more important revenue source, and for more levels of government, though.
I suppose people could quibble over what “large” means, but there is unquestionably a not insignificant portion who want cryptocurrency for the express purpose of keeping the government out of money. And another not insignificant piece who believe taxes is a key piece of this.
Anyone who believed governments of the world would sit by and say “oh, a technology that can greatly aid in tax evasion, we’ll just let this grow with zero input from laws” are fooling themselves.
The technology is perfectly sound and in its original blueprint it was never meant to be "traded" or denominated in an actual mainstream or fiat or government currency. So if centralized elements (i.e. major exchanges) are the cancer, then regulations such as these are the scalpel.
If adopted, a cryptocurrency can perfectly serve an ecosystem as an exchange of value, without ever crossing the barrier to the mainstream monetary systems. I.e. a loaf of bread for a certain fraction of a Bitcoin.
That sounds lovely in theory, but once you get to an exchange of value, you cross the line into taxable territory, and will have to exchange something for fiat currencies.
Sure, most minor barter transactions are ignored as de minimus, but that does not make it legal (i.e., not tax evasion).
So paying your neighbor for a loaf of her home baked bread with a wad of coupons for the local store (or Satoshis) is probably ignored because she is not an official business, but if you do the same at the store, or she grows to anything beyond casual home cooking, the store and your neighbor will need to pay both sales tax and income tax - in fiat - on those transactions.
Same goes for us trading anything large, say we barter my car for your boat (or a bunch of BTC, gold, gift cards or whatever), we'll have to pay taxes on the transaction, in fiat. And we may have the additional pleasure of needing to get an appraisal too.
So the idea that crypto currency could never touch fiat was never anything more than a lovely figment of the internet imagination.
The imagination then continues -- the users of this cryptocurrency-based break-away economy then establish a voluntary tax system, where each user sends crypto to the address/wallet belonging to the respective part of the government they want to see stronger/they agree with their direction -- e.g. firemen, army, roads. The address of an entity e.g. army could further be separated by policies e.g. defence vs foreign missions. It would also be customary to publicly advertise one's own tax contributions source address (which then can be easily expanded to all addresses this address has contributed to). In other words, for the first time in history, we'd have an actual democracy.
Yeah, right, the same trope that 'we don't need taxes on the rich (e.g., progressive rates, wealth taxes, etc.), because they can just donate any time they like.
Meanwhile, in the real world, without such wealth taxes, the problem is not' how do we accept all these donations and what do we do with the surpluses?'. The problem is that the wealthy spend enormous sums both capturing regulators to minimize tax, setting up legal structures to avoid tax (trusts, corps, etc.), and setting up outright illegal global tax evasion schemes.
What you propose does not even work on the scale of a condo building. That Miami building that collapsed couldn't even get agreement for years in time to expedite critical repairs, and it killed like half the residents.
Even myself, I'm proud to pay my taxes, understand that in every large complex endeavor or system there will be significant things that can be called out as 'waste', yet I also take advantage of every tax break my accountant recommends.
Enjoy your fantasies, and let us know when you are interested in joining the real world.
That sounds great in theory, but how would you properly fund foreign interventions, the war on drugs, dragnet surveillance, bailouts, anti-competitive corporate regulations, and other unpopular policies if nobody is willing to pay for it?
That's why bundling taxes in a few non-optional packages is so important. Otherwise people will try to selfishly evade paying for services they believe they don't need, and needlessly pry into public finances despite having no expertise in it.
When the rules make it illegal to not pay tax then rich people will pay tax. The rules are made in such way that people can avoid paying tax, legally. So you should call your representative and make it clear that you want it, but I doubt they will listen to you.
A great deal of tax avoidance strategies used by the rich are illegal, but the IRS either doesn’t notice or frequently chooses not to prosecute them.
A recent great example of why they don’t notice. Rich individual 1 was paying for an employee’s children/grandchildren to go to school while deducting that money from his salary via a second set of books. Rich individual avoids payroll tax, employee avoids income tax, and on the surface it looks legal except the second set of books made it a clearly illegal action. It’s exactly that mix of personal and business activities that makes such criminal evasion so hard to track.
Another interesting example of not prosecuting, personal Roth IRA’s may not invest in companies under specific conditions and transactions must be at the fair market rate. Rich individual 2 broke both rules, but the IRS investigation decided to leave it alone. This is adding up to hundreds of millions of dollars in tax fraud, but if the IRS chooses not to prosecute then he’s free and clear.
It’s telling that local law enforcement frequently receives money from confiscated items but the IRS doesn’t. On one hand that’s great from a conflict of interest standpoint, but when IRS funding pays for it’s self via taxes collected it’s an interesting argument to starve them of funds.
I am advocating for state-sanctioned punishment for extremely deleterious behaviour.
Look up the punishments for being a traitor. In most countries, treason is punishable with the death penalty. I see rich people avoiding taxes as a low-level treason. They extract wealth, while damaging society across all strata -- in a way, they are betraying the fundamental underpinnings of society. That should be treated as a sort of treason, and suffer the same punishments.
Capital punishment is not murder. Even killing millions of innocent people, like the US likes to do for financial and racial reasons, is not technically a murder.
I think they were referring to the fact that the state has the monopoly of violence: it is the only moral agent, in the country, with the right to kill without making it a crime.
So it's a murder "technically physically" but not "technically legally".
PS: I'm not endorsing death penalty in anyway. I oppose death penalty.
Murder has a meaning that predates legal definitions.
Also, many groups in history are currently accused of murder despite it being legal at the time.
From slave owners to Nazis, from communists to African warlords.
They committed genocide. Even worse, obviously, but it fits the definition of word “genocide” better than “murder”, thus I believe we should be using that word instead.
Okay, let’s use another example. Is software piracy stealing? Some people claim it is. I don’t, because words have meanings.
If the government does it it's not murder, because murder is specifically unlawfull killing. I also agree that tax evasion should not be punished by the death penalty, but prison and extremely harsh fines would be a good start imo.
According to German law at the time, presumably, they were not committing murder. It's hard to say because it's entire possible for members of a country's military to follow illegal orders and be breaking the law.
According to international law, they were committing murder.
Murder is defined as illegal homicide. As such, it can only be really be discussed in the context of a legal framework. But there can be many legal frameworks at play in any one place/instance.
I'm saying there is a moral framework that supersedes a legal one, and I reject the "dictionary.com" definition as the conical definition.
From the Oxford dictionary, there is more to the meaning than your shallow lawful vs unlawful demarcation line:
. a. The most heinous kind of criminal homicide; also, an instance of this. In English (also Sc. and U.S.) Law, defined as the unlawful killing of a human being with malice aforethought; often more explicitly wilful murder.
In OE. the word could be applied to any homicide that was strongly reprobated (it had also the senses ‘great wickedness’, ‘deadly injury’, ‘torment’). More strictly, however, it denoted secret murder, which in Germanic antiquity was alone regarded as (in the modern sense) a crime, open homicide being considered a private wrong calling for blood-revenge or compensation. Even under Edward I, Britton explains the AF. murdre only as felonious homicide of which both the perpetrator and the victim are unidentified. The ‘malice aforethought’ which enters into the legal definition of murder, does not (as now interpreted) admit of any summary definition. Until the Homicide Act of 1957, a person might even be guilty of ‘wilful murder’ without intending the death of the victim, as when death resulted from an unlawful act which the doer knew to be likely to cause the death of some one, or from injuries inflicted to facilitate the commission of certain offences. By this act, ‘murder’ was extended to include death resulting from an intention to cause grievous bodily harm. It is essential to ‘murder’ that the perpetrator be of sound mind, and (in England, though not in Scotland) that death should ensue within a year and a day after the act presumed to have caused it. In British law no degrees of guilt are recognized in murder; in the U.S. the law distinguishes ‘murder in the first degree’ (where there are no mitigating circumstances) and ‘murder in the second degree’ (though this distinction does not obtain in all States).
