Detax
Can we create a lovable tax system based on blockchain consensus protocols?
A Brief History of Tax
The first record of organized taxation comes from Egypt around 3000 B.C., and is mentioned in numerous historical sources including the Bible (chapter 47, verse 33 of the Book of Genesis describes the tax collection practices of the Egyptian kingdom).
Tax practice continued to develop as Greek civilization overtook much of Europe, North Africa, and the Middle East in the centuries leading up to the Common Era. The Rosetta Stone, a clay tablet discovered in 1799, was a document of new tax laws decreed by the Ptolemaic Dynasty in 196 B.C. .
From the Roman age and through medieval European history, new taxes on inheritance, property and consumer goods were levied, and often played a role in war, either by funding them or provoking them. Other cradles of civilization, such as ancient China, also levied taxes under the authority of a strong centralized government. The Chinese T’ang and Song Dynasties employed a methodical census record to track their populace and impose the proper taxes on them. These funds and materials were then used to support armies and construct canals for transportation and irrigation, among other projects. The Mongol Empire that took control of much of Asia around 1200 instituted tax policy designed to influence large-scale production of certain goods like cotton.
It seems ancient rulers, as do nowadays politicians, never run out of original ideas for new and original taxes whenever the national treasury risks running out of funds. History is littered with examples of varying degrees of oddity.
Tax Oddities
In 1648 the Russian government’s replaced different taxes with a universal salt tax for the purpose of replenishing the state treasury after the Time of Troubles.
In the days of ancient Rome, it was a tradition for the upper class to liberate their slaves after a set number of years. The Roman government, however, looked at this as an opportunity to generate revenue, and they taxed the newly freed slave on his freedom.
The wallpaper tax, introduced in England in 1712 during the reign of Queen Anne, aimed to capitalize on the growing popularity of wallpaper as an alternative to tapestry or paneling. In an attempt to target wealthier citizens, the levy was directed at “painted, printed or stained” wallpaper favored by the middle and upper classes, rather than cheaper plain paper, which remained untaxed.
The infamous window tax, supposedly the origin of the term “daylight robbery”, was introduced by William III in 1696, and lasted for over 150 years. Originally intended to be a sort of income tax in disguise, it aimed at large houses owners (which had many windows) as those were assumed to be people of means. It ended up causing people to brick up windows to avoid taxation.
After the Napoleonic wars, the British state was attacked by radicals as a “tax-eater”, taking money from the poor to give it to the rich. In order to stifle popular protests, in 1815 the government increased tax on newspapers, taking them out of reach of the poor and stopping (so it was hoped) the spread of radical criticism. If anything, it had the opposite effect.
And the list goes on.
Résistax
Surprisingly, nobody likes taxes.
The history of taxation in the United States begins with the colonial protest against British taxation policy in the 1760s, leading to the American Revolution.
“A party of men, armed and disguised, waylaid [Robert Johnson, collector of the revenues] at a place on Pidgeon Creek, in Washington County, seized, tarred and feathered him, cut off his hair, and deprived him of his horse, obliging him to travel on foot a considerable distance in that mortifying and painful situation.”
We Won’t Pay!: A Tax Resistance Reader edited by David M. Gross
The salt riot in Moscow in 1648 came as a reaction to the salt tax imposed by the Russian government, while the French took to the streets of Paris late 2018 where the yellow vests put the city aflame, due to the proposed green fuel tax aimed at cutting down on carbon emissions, causing the tax to be first postponed then completely dropped in early 2019.
On top of such rebellious acts of civil disobedience, many prefer the less direct act of tax avoidance.
Be it via legal tax planning (i.e. using tax system loopholes to legally avoid paying taxes), paying under protest (e.g. paying taxes writing their cheque on a toilet seat or by paying the entire amount in low-denomination coins), or choose to reduce spending thereby cutting on the government’s VAT returns. Others may simply, and illegally, evade taxes by neglecting to report their actual income.
Some resisters refuse to willingly pay only certain taxes, either because those taxes are especially noxious to them, or because they present a useful symbolic target, or because they are more easily resisted. While others openly declare they would not be paying specific taxes they deem to be unjust.
For instance, in the United States, many tax resisters resist the telephone federal excise tax. The tax was initiated to pay for the Spanish-American War and has frequently been raised or extended by the government during times of war. This made it an attractive symbolic target as a “ war tax “.
It would seem that more than people dislike the notion of paying taxes, they dislike the usage governments make with their money.
If that is indeed the root cause for tax resisting and evasion we need to create a tax system that allows citizens to direct their taxes where they see fit while keeping a functioning modern society which heavily relies on public spending in order to provide the multitude of services and infrastructure on which we all depend.
Power to the People
Ideally, to get public spending right, we the people should all manage our national budget, direct-democracy style. That, however, is completely impractical.
Budget planning on a national scale requires time and effort well beyond the capacity and expertise of the people. We would always need honest qualified brokers to do the job for us. The question though, is how do we make sure those brokers take the right decisions, namely ones that conform with the public’s best interests.
Politicians have proven to be anything but honest brokers when it comes to distributing public tax funds. Personal interests, lobbies by large corporations, campaign donations and short term political benefits are their main concern, for which they would gladly sacrifice fair and optimal public spending just to keep office.
Assuming we agree that taxes are important and should be mandatory in order to maintain our modern way of life (building public infrastructure, sustaining the elderly and incapacitated, funding police and armies to keep us secure) we arrive at a seemingly dead end. On one hand, we admit we need someone to manage public spending, while on the other we have lost control and trust of those who we elected to do it.
Seems like an impasse? Not necessarily.
As always, it’s all about going back to the most basic of definitions, starting with one simple question: What are taxes?
Let me propose a simple yet powerful definition. Taxes are a deposit (or loan) we provide the banking institution known as: the government (dwell on that for a minute).
When we deposit our money in a commercial bank, we have a set of expectations as to how this money would be handled. Primarily we expect the bank not to lose it, to allow us to withdraw all or parts of it and generally make responsible use of our hard-earned dollars.
Extending this analogy to tax dollars, we expect our government not to lose (spend) our tax dollars on agendas that do not benefit the public, allow us to withdraw the outcome of those funds in the form of public services and infrastructure, and make responsible use of it. After all, the same way a bank deposit is ours even though it is locked in a digital safe someplace, tax dollars are also ours, and we should be the ones deciding what to do with them.
But how does the deposit analogy get us out of the woods? Well, as stated, deposits can be withdrawn. So should be tax dollars.
Dismembering the Gordian Knot
As the reader may recall, we presumed the public is not able nor wants to manage the everyday details of the national budget, however, the public may, and has proven willing and able, to detect misuse.
Today, under the current tax regime, we have nothing to do about it other than take to the streets or evade taxes altogether, none of which presents a viable option for the busy, law-abiding, citizen.
But what if we could fine the government when it misuses our taxes? Taking the deposit analogy one step further, it’s our money, and we want it back should the one safekeeping it goes astray.
Such fines would curb politicians’ enthusiasm when it comes to spending our taxes for their own selfish purposes as once badly used, the money would be gone. Of course one may claim that governments that control their own currency (e.g. the US) may simply print more money in order to nullify and circumvent such public fines. That may well be true, however, the ramifications of such a bold move could be quite detrimental sending shockwaves across national as well as the global economy and are out of the scope of this article (see the role of taxes and money supply in Modern Monetary Theory and the recent debate around it, or listen to this excellent podcast).
The System
We propose a tax regime where taxes remain mandatory, and where elected officials are still in charge of national budget distribution and spending. However, the people would be provided with a dynamic, online voting application allowing each individual who has a voting right to set up or join an existing fine campaign where he or she votes to fine a specific budget clause by some suggested percentage.
In order to represent public opinion regarding a voted-on budget clause we would allow both positive as well as negative votes, meaning you can vote for, or against the campaign, where a consensus is reached only if the positives votes greatly outweigh the negative ones, avoiding large organized interests groups from misusing the system to force their own individual purpose, as the public may move to cancel out their vote, preventing consensus.
Each individual may vote for as many fine campaigns as she wishes, while the system continuously collects votes over all fine campaigns.
Should a consensus be reached in some fine campaign the government would be immediately fined, and the said amount would be deducted from offending budget clause and kept in escrow until such time the people agree to release those funds.
Note fined tax dollars would not be returned to the public in order to disincentivize voting for fine campaigns whose sole purpose is to evade taxation. Fined money is therefore kept from both the public and government until such time the public pulls its votes off the fine campaign releasing the funds for public spending.
To avoid circumventing the system, politicians would be barred by law from raising taxes in order to compensate for lost funds. However, should they try to, under some false pretense, the public may re-fine them making such compensation inexpedient.
The technological tools for making such a system available to the public are ready and mature. Blockchain (and similar) networks, not to be confused with cryptocurrencies such as Bitcoin, have provided us with a way to allow dynamic online voting and consensus alongside methods to automatically act upon them.
Putting the national budget on such a network (e.g. Ethereum, even without converting the national currency into a cryptocurrency), would allow everybody easy access to a nationwide (and even global) voting mechanism which would automate both the voting process and actions taken on reaching consensus via smart contracts. Those (without getting too technical) being honest computational brokers predefined to act without prejudice on the voting results of each campaign, withdrawing the funds from the fined budget clause putting them into escrow.
Closing Thoughts
Taxes and how they are used have, and always will be, a reflection of our society, its priorities, and political tendencies. Putting a feedback mechanism in the hands of the public, allowing the people to incentivize (and disincentivize) elected officials spending public funds is yet another step towards a more direct and involved democracy where people actually influence their daily lives instead of simply ranting about it on Twitter.
But we need to agree to take the burden of responsibility.
Originally published at http://colderlazarus.me on July 18, 2019.
