UNDIPLOMATIC TIMES

INDEPENDENT NEWS AND COMMENT ON WORLD AFFAIRS

forget taxation!


Around the world, few things are hated as passionately as taxes. In rich countries and poor, the story is the same. Taxes are a perennial problem of government, they are expensive to collect, give rise to corruption, and are never enough to meet the needs of people. Everywhere, they separate the interests of the rich from the rest of the population, giving rise to the most damaging divisions in politics. At a time when governments around the world are facing the problem of massive natural disasters, the funding of recovery efforts is raising enormous new burdens on taxpayers.


There would be many direct and subsidiary benefits from eliminating taxation as a source of revenue. The primary direct benefit would be the immediate universal raising of incomes. Perhaps as important a benefit would be eliminating the need to maintain the accounting and record-keeping infrastructure necessary to satisfy the taxman. 


Globally, the problems caused by taxation are multiplied a hundredfold because of poverty, crime and corruption. To avoid taxes the rich around the world break the law. They stash their money in foreign bank accounts, making themselves vulnerable to blackmail and extortion by those who hold the money (British bankers mostly). The money launderers finance crime worldwide, fostering a black market that is estimated to be many times the size of the American economy. They create huge Hedge Funds that wash trillions of dollars through stock and commodity markets, in effect destroying the central price-setting mechanisms of free-market economies. 

   

We argue here that none of this is necessary: in the Age of the Internet and Worldwide Web governments can eliminate all taxes and establish crowdfunding as the means to pay for all public expenses. In doing so they can create full employment, eliminate money laundering and all the crime it sustains, including terrorist organizations, whose financiers would be unable to hide what they do. 

How would it work?

There are several ways to institutionalize crowdfunding. My favorites are web-based lotteries offering as prizes travel packages to tourists and housing units. Here are the numbers for the United States.

The Numbers
The Trump administration’s 2017 budget proposal totals $3.65 trillion ($3,650,000,000,000). Revenues from taxes are estimated at $3.21 trillion ($3,210,000,000,000). That leaves a deficit of $443 billion, adding to the national debt now standing at over $20 trillion ($20,382,178,657,059).

To generate revenues on that scale Congress should authorize two new federal agencies, one to run the lottery for tourists, the other offering apartments and houses as prizes. They would sell as many tickets for each prize as needed to pay costs, plus an additional number to replace tax revenues.

Tourism Lottery
Consider the math. Some 75 million tourists visit the United States each year. Say the average prize (travel and hotel package) costs $10,000. The tourism agency would have to sell just 10,000 $1 tickets to generate that amount of revenue, a ridiculously low figure. It could easily sell an additional 100,000 $1 tickets to generate tax revenue. At that rate, it would generate $7,500,000,000,000 annually, more than double the amount needed for the 2017 budget. 

The actual packaging of tours would remain in the hands of those who now handle the business; but they would be paid by the lottery rather than by individual tourists (who would merely have to send in their winning tickets). As the odds of winning one of the 75 million prizes on offer would be excellent the lottery can be expected to sell out its tickets in short order.

Housing Lottery
In the 12 months preceding August 2017 there were over seven million private homes for sale in the United States and 14.39 million housing starts. For the purpose of calculation, let us say the lottery would have approximately 12 million prizes. On the basis of the national median sale price of $300,200 for an American house in August 2017, that would mean selling 300,200 $1 tickets to cover costs, plus whatever level is authorized by Congress for revenue purposes. If that is 400,000 $1 tickets per house, it would generate an annual revenue of $4.8 trillion ($4,800,000,000,000), enough to replace tax revenues and begin repaying the national debt. 

 In addition to making houses available for the price of a $1 lottery ticket, these arrangements would optimize efficiencies in the housing sector. Builders could sell out entire housing estates in a day and get right back to the next project. Realtors would have the happy prospect of dealing with the secondary market created by those who win houses and want to sell them immediately. Further, if a quota of prizes were made available only to the very poor, it could end the problem of homelessness in America.


Global Implementation

The numbers would be different for other countries but even the poorest countries could run the housing lottery and benefit enormously. The tourism lottery could be implemented by individual countries like India or China or on a regional basis: Africa, with its huge tourism potential, could realize it with infrastructure developed with crowd-funding.  


The lotteries will need dependable and honest implementation machinery. In the context of the proposal for a successor UN-GLOBENET to replace the United Nations System, the World Bank and UNDP would be the appropriate bodies to supervise lotteries in countries that needed support. National governments would control the money raised and spent in their jurisdictions while allowing supervision of the lottery system to be under UN-GLOBNET.

Healthy Disruptions
Of course, these changes will be hugely disruptive of the banking, accounting and lawyering professions. In fact, we can argue that the change would shift the entire capitalist system into new territory. But that is not a reason for avoiding crowdfunding. Unless we make the shift to a new economic system the galloping advance of Artificial Intelligence will create massive waves of unemployment, opening the world to unrest and possibly revolutionary violence similar to what it witnessed at the onset of the Industrial Age.

The disruptions of transition to crowdfunding should be seen as draining the swamp  built up by vested interests in the last five centuries of corporate capitalism. As Adam Smith explained at great length in The Wealth of Nations (1776), corporations  unavoidably create corruption and waste because of their inefficiencies in controlling massive amounts of “other people’s money.” Taxation has become part of the swamp, supporting a punitive system of surveillance and exaction that has become the enemy of liberty around the world.


It is important to keep in mind that the disruptions will occur with or without the crowd-funding revolution. The New York Stock Exchange, for instance, has been shrinking at an alarming rate. It was half the size in 2016 than at its peak in the 1990s, and quarter the size it was in 1976. If we consider a number of other technological trends, including Artificial Intelligence, use of solar energy and 3D printing, we see a wholesale reformulation of the world we live in, one that will meet all the goals of the Paris Accord on global warming. See here for what the mega-trends portend.