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Friday, February 8, 2013

Alternative currencies and avoiding the taxman

El tĂșnel del diablo was a large dark drainage tunnel in Socorro New Mexico that was bone dry 364 days out of the year. I was warned in the most graphic terms of the dire consequences that would be the result if I was caught playing in it on the one day of the year when a flash-flood happened to suddenly explode through it. It was said to be haunted. It was whispered amongst my school mates that the restless spirits of drowned kids roamed endlessly in the dark tunnel below, waiting for a rescue that would never come. It was also my path to school. A tunnel that the other kids never dared climb down into was my daily yellow-brick road.

I was seven years old and I didn't believe in ghosts and other superstitious nonsense. I traveled the path I did because of the nasty Hispanic street gang that roamed the street rout to school. After having been chased, caught, threatened, and then robbed of my lunch money—protection money—I quickly sought out and found a pathway to school that was for me the cheapest and the safest. Today I have the same philosophy. I'll go out of my way to avoid being robbed.

There are some people who don't mind paying taxes. I was talking with someone like that today. I postulated my theorem that people will go out of their way to avoid paying taxes, but he demurred. He believes that it is a patriotic duty to pay taxes. How else—he rhetorically wondered—would the government be able to continue building roads and bridges and schools? How else would police and firefighters be possible if it wasn't for taxes? How would America hold off foreign invaders if not for the military paid for with tax dollars?

His question brought to my mind the situation that serfs and peasants most likely found themselves in during the dark-ages. The lord of the land would send out his tax-collectors who would take payment in silver and gold or payment in kind. These peasants felt, I'm sure, a similar reluctance to part with their honestly earned wealth that I feel today. How else—the tax collectors might have asked—would the lord be able to supply his soldiers with food and mounts and armor? And if not for those soldiers, then who would it be that would drive off the depredations of footpads, rogues, bandits, thieves, wolf-packs, and of course enemy incursions from other lands? In those dark-ages every bandit and lord guarded the territory within which their victims dwelled, in the same way that a rancher guards the land within which his cattle graze. Without the rancher, who would protect the cows from wolves, mountain lions, and bears?

Regardless of where we live, we each pay protection racket money. If nothing else we at least pay sales tax. With few exceptions we each resent paying it too, and at least for those with any sense at all, we do our best to limit that extortion payment to the absolute minimum possible. In today's discussion, I suggested to my tax-loving friend that since he was feeling so patriotic, maybe he should pay double the taxes this year. I told him that there's a little box he could check where he could add additional taxes to pay down the national debt. He paused and then said that maybe—just maybe—he would do exactly that.

The lengths to which some people will go to, to avoid paying taxes are sometime amazing to me—to the boy who walked a mile through a sewer tunnel both ways back and forth to school! The latest is Amazon's new scheme. Have you heard about this? I question its effectiveness but I'll be paying close attention.

I'm not sure whether this is a way to avoid sales-tax, but if so I don't think it's going to work. Amazon is fully aware that a big part of its competitiveness lies in the fact that very often customers don't have to pay sales tax. This savings is off-set by shipping charges so the net loss to customers is roughly equivalent to brick and mortar shopping. However, if customers face both sales tax and also shipping charges, there's a good chance they'll simply get in their cars and make the drive to Wal-Mart. I'm assuming that, for whatever reason, these "coins"—since they're not a tangible good or service—will not be taxable under the laws of many states? I don't really see how this differs from a gift-certificate so I don't think this idea will fly, but I give Bezos kudos for the college try.
Amazon announced this week that come May its customers will be able to buy Kindle Fire apps and some other goodies with a new virtual currency called Amazon Coins. And to jumpstart the program, they will give away millions of dollars worth of coins. The giveaway is a great way to get started, but it points to a problem with using the word "currency" to describe what Amazon has created. Calling Amazon Coins a virtual currency suggests that it will be a widely accepted, independent store of value that you can easily convert to another currency. But from the few details Amazon has given, there's no reason to think this will be anything other than yet another in-house system of credits.
There is already an alternative currency in use called a bitcoin. I don't know too much about them except that people who use them don't worry about sales tax. Now then...if I add all these small steps into one giant leap what we've got here is the concrete fact that people don't like to pay taxes, that they'd walk a mile in a sewer to go around the tax man, and that there are already at least two alternative currencies which are tax-free and widely accepted. If at some point these alternative currencies start to become too successful, the state will move to shut them down. However, what cannot be argued is that when it comes to avoiding taxes...where there's a will, there's a way.

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