Taxation should be small, uniform, and applied to transactions and never to the earnings of individuals. The earnings of individuals, however, _are_ exactly one sort of transaction tax. If you wish to make an exception for personal income, then you wish to make an exception out of every transaction where one of things exchanged is labor. Therefore, you would have to have a certificate which said "this is labor being exchanged." My suspicion is that the amount of the economy performed as labor would skyrocket. Either you tax each and every motion of money or you require an intrusive anti-privacy system in order to determine taxability. I can tell you now, large interbank transfers aren't going to be taxed. Intra-corporate transfers aren't going to be taxed. In order to tax transactions you have to know what the transactions are. A transfer of money is not always a transaction. The simplest case is where I move money from an account at one bank to an account at another. That's merely a transfer; there is nothing exchanged. A VAT would do the trick nicely and could be easily built into the DigiCash system of the future. Such a "compromise" (read, sell-out) could technically be built into a transfer scheme. Requiring VAT on all transactions through this scheme would effectively restrict it to consumer level sales. Businesses wouldn't use it for wholesale transfers, and individuals wouldn't use it amongst themselves. Thus there would be alternate ways of transferring money, and these ways could be used to settle transactions. If individuals wish to go to the trouble of avoiding taxes setting up secret businesses that encrypt all transactions, more power to them. The small number of people who will bother to do this will not have any real impact on taxation. Really? It would be small? Suppose we assume unrestricted encryption, as you suppose. Assume the USA for purposes of discussion. Further suppose that's it's really easy to set up a digital account, denominated in dollars, in a non-USA jurisdiction, say, China. All the transactions are encrypted, and China's not talking to USA authorities--they don't have to. I think the interesting question here is how soon the USA government has to change its regulations because so much business (and hence capital) has left the USA. When capital flight for the individual is easy (and it's not right yet), expect to see rapid changes. Eric