RE: Hard to Tax Scenario

[Robert Hettinga <rah@shipwright.com>]

At 8:44 pm -0500 on 3/29/97, Hal Finney wrote:

> I think Robin's example of an anonymous doctor is a bit extreme,
> since doctors typically do hands-on work.

Ain't quite so far-fetched as it looks. At the ACM 50 year thing a bit ago,
they were doing telemedical diagnoses. The Army has a teleoperated
meatball-surgery system for battlefields. Onion routed surgery, anyone?

> Yes, I think there is general agreement that these methods will not work
> well for large businesses.  Another issue is the requirement to keep
> fraudulent records, etc., which may involve a large number of people in
> the conspiracy.

Right, but, in a <ducking> geodesic </duck> market, large entities dissolve
anyway because (another of my wildly unsubstantiated claims) large firms'
internal transfer pricing efficiencies aren't any higher than those of the
open market.

> I gather that similar dodges are employeed today by wealthy lawyers and,
> yes, doctors, to hide some of their income.  They hire offshore companies
> to perform some services, which are actually under their control via
> shell corporations, trusts, etc., set up in banking-secrecy jurisdictions.
> Presumably crypto could smooth the way somewhat and open these methods
> up to more people, but I don't see it as a particularly essential ingredient.

I think, soon enough, we're all going to be sole proprietors of some kind,
transacting business on our own behalf on the net, and cash will always
king in that kind of world. Frankly, corporations have no way to hide, or
they would. Heck, when you think about it, corporations, as legal entities,
anyway, can't survive in an environment where laws can't work, anyway.

(By the way, I'm going to embarass Doug Barnes now by naming a law after
him. He said a thing of beauty at FC97: "Any transaction protocol which
has, as one of it's steps, '...and then you call the cops', isn't a real
good idea on the internet." Shall we call it Barnes' Law, anyone? Sure,
lots have said it before, but no one's said it better...)


> These all assume a model where the transaction is open, but where the
> ownership issues are hidden.  However I think we have been talking about
> simpler methods, where the fact of the initial income is what is hidden.

Right. Or, if the income is actually earned and spent on the net. There,
cash is the best payment method because it settles instantly without the
recordkeeping overhead --  much less the indirect cost of law-enforcement
:-).


> Or she takes some work on the side
> via an anonymous network, and the cash goes straight into her pocket.

Oops. I shoulda read further, I guess. :-).

> If receipt-skimming is facilitated by the untraceable nature of ecash,
> then presumably sales tax can be under-reported as easily as income tax.

Or capital gains, or any other book-entry tax.


> I don't know how or whether crypto could help with the more elaborate
> techniques you are really asking about, dummy trading partners and such.
> If you're really paying taxes on your gross receipts, then presumably
> the only way to save is to hide those receipts.  You could do this by
> taking some fraction of your work anonymously, even if most of your
> income is reported.

I think of this stuff at the boundry between cypherspace and meatspace as
the equivalent of turbulence. And, as the joke goes, turbulence is a hard
problem.  :-).

However, I do know that as it becomes more and more easy to buy and hold
assets on the net, particularly financial assets (the largest category
thereof) and, someday, maybe even actual meatspace-physical *stuff*, this
problem, like that of punching through the turbulence at the sound barrier,
or that any other "barrier" for that matter, will be not such a big deal.
(Another paragraph of Proustian proportions, that...)

Cheers,
Bob Hettinga

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Robert Hettinga (rah@shipwright.com), Philodox
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