Cypherpunks views of the future in mainstream media. Kind of fun. The following is from: http://www.economist.com/issue/31-05-97/ld4660row.html -- Vince http://www.offshore.com.ai/vince/ [The Economist] The disappearing taxpayer "THE art of taxation", advised Louis XIV's treasurer, Jean-Baptiste Colbert, "consists in so plucking the goose to obtain the largest amount of feathers, with the least possible amount of hissing." His observation remains true, except for one big change. Unlike geese, people in the 17th century did not know how to fly. Now they can. In the coming decades electronic commerce -- combined with the growing ease with which firms can shift their operations from one part of the world to another -- will make it ever easier for people to flee countries where taxes are high, or to evade tax altogether by doing their business in cyberspace. The hole this will leave behind is already worrying many governments (see ). Some argue that it is "unfair" for others to lure their firms away by levying lower taxes, and are pushing for the harmonisation of taxes. Another new idea is to impose a tax on electronic transactions. But although governments everywhere will have to start thinking -- and soon -- about how to raise taxes in the newly weightless global economy, both remedies are flawed. A question of sovereignty . . . Those who advocate harmonisation say that the alternative is a "race to the bottom", as governments sacrifice social spending on the altar of competitiveness. But different countries have different spending needs and make different judgments about the proportion of income to devote to transfers and public services. Indeed -- remember "no taxation without representation" -- such decisions lie at the heart of modern politics. That is why even in the EU, a relentless prober of the boundaries of national sovereignty, proposals to harmonise taxes have made little progress so far. A recent proposal from a panel of economists to make up for the tax losses caused by electronic commerce by introducing a "bit tax" on flows of electronic information is similarly defective. It is hard to see how a single country or even a group might impose such a tax without simply forcing on-line transactions offshore. But in so far as it succeeded, such a tax might just hamper the adoption of information technology, depriving people and businesses of its great productivity benefits. So if neither of these ideas is any good, why not do nothing? It is true that the full impact of electronic commerce and globalisation on governments' taxation powers is still some way off. The fact that tax levels vary from 60% of GDP in Sweden to 32% in America suggests that even in a globalising economy governments are still able to make distinctive fiscal choices. However, every so often a big Swedish company -- Ericsson most recently -- threatens to decamp because egregious income taxes make it difficult to recruit skilled employees. America's corporate taxes have withered to insignificance because of the mobility of firms. At present these are merely straws in the wind, and hardly new ones, but there is no doubt which way the wind is blowing. Some competition between tax regimes may be a good thing, if it encourages governments to show more discipline in their tax and spending policies. But one day globalisation and electronic commerce could make a sizeable dent in a country's total tax revenues. And these forces have already made a big impact on the way the burden of taxes falls on a population. This is what rules out the option of inaction. . . . and of equity Not all firms, workers and products are equally mobile. Entrepreneurs, scientists, tennis players and film stars may be able to uproot themselves in search of lower taxes, but the average worker is still unlikely to become a tax refugee. Although this may reassure governments, it implies that governments will eventually have to cut taxes on the most mobile factors of production, notably skilled workers, while taxes on less mobile unskilled workers will have to rise. Over the past decade or so taxes on capital have already fallen sharply while those on labour have risen. In future it will be harder to tax firms or high-earners at high rates because they are the most mobile. The implication is that unskilled labour will have to bear a greater burden. If they are to mitigate this change while maintaining their tax revenues, governments need to speed up tax reforms that are needed anyway to improve economic efficiency. In most countries at present, exemptions and loopholes distort the allocation of resources. Broadening the tax base by scrapping exemptions such as mortgage interest relief and zero rates of VAT on certain goods and services would allow a much lower rate of tax and therefore reduce the incentive for both tax evasion and migration. Less complex reporting requirements would reduce another incentive to hide from the taxman. A second needed change is to shift the tax base from income towards consumption and property, which is both immobile and hard to hide. Even consumption is becoming more mobile. But a consumption tax would both remove the present disincentive to save and help to collect taxes from tax dodgers (even those whose income comes from invisible Internet sales have to spend it). Having changed so much else in the world economy, globalisation and information technology will inevitably undermine the way governments raise taxes. Reforming the tax system to plug the hole is going to be hard. Not reforming it would be even worse. 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