Crypto and Taxes, Etc.

[Duncan Frissell <frissell@panix.com>]

To: cypherpunks@toad.com

In a recent post, Carl Ellison <cme@sw.stratus.com> opined:

>Mr. Bennett is clearly a victim of the popular impression that privacy is
>somehow new.  Anything which can be done with public key encryption can
>be done already with private communications (whispers, notes which are
>mailed and destroyed, secret mail drops, couriers, secret-key
>encryption,...>.
>
>All the hype over cryptoanarchy is overblown.  We are capable of anarchy,
>income tax evasion and secret bank accounts today.  Look around you.  How
>much of that do you see in your own life?  What makes you think that
>you'll see any more of it in 10 years?

> - Carl

PM has already responded pointing out that cryptography makes such things
more convenient and this is certainly true.  It is much easier to 
participate in real free markets if secrecy is cheap and easy.

There is another aspect however that is tied up with crypto and telecoms.

In traditional Black Markets, the transactions are illegal.  In future 
Black Markets on the nets, most of the transactions will be legal.  
Legality certainly encourages transactions relative to illegality.

If I am a non-US citizen resident in a tax-haven jurisdiction, I have no 
US tax liability for my non-US source income.  I also have no tax 
liability in the haven jurisdiction as long as I wasn't working in that 
economy.  This was OK in the past if you were a bank or a rich owner of 
passive income.  You could accumulate it free in a tax haven.  Most people 
couldn't participate, however.

With commerce on the nets, however, it becomes much cheaper to arrange 
your affairs (if you are a non-US citizen) such that you have no tax 
liability.  You may also be able to operate in a much looser regulatory 
environment.  

While it is true that you could accomplish all of the above using 
traditional technology, the nets mean that you can do it more cheaply 
(meaning it becomes economically appropriate for more transactions) and in 
a mainstream market not off to the side in a tropical pesthole.

You can have all the benefits of forum shopping while not giving up access 
to the richest markets of the OECD countries.  If a Brit or an American 
chooses to download a financial product, a video, a drug synthesis 
description file, medical advice, or some other bits of information from 
you (you being located somewhere on the nets) they may be breaking various 
laws (depending on the contents of their download) but you may not.

Thus it is legal, today, for an American to purchase an unregistered 
foreign security but it is illegal for me to promote such a thing 
domestically.  On the nets, we are all foreign and we are all domestic.  
It would be legal to promote the sale of an unregistered foreign security 
over the nets.  What happens to the SEC?

As I said in London in November (and *think* about this folks):

"And what can we call this new form of social organization growing on the 
nets and in the modern fluid business environment?  When two or more 
people can meet together and communicate freely and privately without 
interference by outsiders, they can trade -- they can form a market.  If 
this trade on the nets is made free from even the *possibility* of 
external regulation, what we have is a free market and a free society."

Unless you can block this communication, we've got a market since 90% of 
the economy will be in non-physical goods and services within a very few 
years.

Sorry to repeat myself...

DCF

Frissell Glossary - OECD (Organization for Economic Cooperation and 
Development) AKA the 24 richest countries.  (The 12 EEC Members, US, 
Canada, Japan, Aus, NZ, the non-EEC countries of Western Europe including 
Iceland, and Turkey.)    


--- WinQwk 2.0b#1165