Will Cryptocurrency Alter The Need To Tax?
Taxes. This is a topic few like to discuss.
Elon Musk made news lately which his complaint about the proposed increase in taxes. Leaving aside whether he can afford it or not, it just shows that nobody likes taxes. In fact, many consider it legalized thievery.
Whatever the degree of one's stance, it is safe to say that few of us can avoid them. They are everywhere. Even if one does not make enough to pay income taxes, they come in other forms. Whether it is VAT, sales, property, or just the fees we have to pay for different things, this is something that affects all.
At the national level, many are starting to question why governments even tax at all. They showed a willingness to engage in deficit spending, running up enormous debt loads. If the US Government is going to adds trillions a year to the debt, why indulge in the game of income taxes? After all, what is another couple trillion on an amount that will never be paid back? Perhaps with the money in the hands of the population, there is a chance the growth rate might accelerate.
Either way, taxes are not going away anytime soon. Is there, however, another system that could be constructed for funding? There is a chance we could be seeing it.
Crypto-Funding
Cryptocurrency is a wealth generation tool. Some believe it will cause the greatest amount of wealth the world ever saw. Considering where things were a couple years ago, it is hard to argue this viewpoint. Things are absolutely exploding and we are still in the very early stages.
Of late, we are seeing governments starting to step in. Obviously the regulators are looking at everything that is taking place. That is, however, not what we are referring to.
A number of governments around the world are starting to embrace the opportunities cryptocurrency offers. We have CityCoin which brought MiamiCoin and NYCCoin to market. This is allowing these cities to generate revenue through the mining operations. The goal is to establish a use case around the tokens which will help to give them value.
Then we have the infamous President of El Salvador, Nayib Bukele, who pushed through the idea of making Bitcoin legal tender in that country. This set off a whirlwind of speculation of what could be accomplished.
Not one to rest, the President is now in the process of announcing Bitcoin City. To do this, $1 billion in Bitcoin Bonds are going to be issued out. This is a new twist on funding.
In an announcement by Blockstream, Mow also said that the $1 billion will be split into two parts. $500 million will go towards building energy and Bitcoin mining infrastructure in the region. The other $500 million worth of BTC will be locked up for five years. Mow further stated that after the five-year lock-up period, El Salvador would start selling some of the bitcoin used to fund the bond to give investors an “additional coupon,”
Here we see Bitcoin being used as collateralization on the debt. It also provides an added incentive to bond holders, which should help to increase their return.
Hence, it appears the mining operations are going to be a part of funding the foundation of this city.
Alternative To Taxes
As government entities start to realize how they can be funded via different cryptocurrency projects, more will start to roll out. We can surmise this is only the beginning.
If, however, governments do engage in this manner, netting tidy sums of revenue for the treasury, will we see a replacement of taxes?
Once again, we turn to the esteemed President of El Salvador:
According to Bukele, Bitcoin City will be a full-fledged metropolis with residential and commercial areas. It would also have shopping centers, restaurants, a port, an airport, and railway services. There would be no income, property, capital gains, or payroll taxes. Residents would, however, be subject to just value-added tax (VAT). This tax will go towards paying for the municipality’s bonds, public infrastructure, and city maintenance.
Emphasis added
Obviously, we still see taxation, but we have to keep in mind, this is the initial foray into this area. We do have to like the fact that all the other taxes are rolled back.
In spite of the VAT, does this sound like somewhere you might want to live?
The reason for this question is to show how something else is starting to arise. We are starting to see the onset of what will be competition for residents. Certainly, this was always the case to a degree yet it will accelerate in the next couple decades.
Without going into details, since they are outside the scope of this article, basically governments are going to have to get creative with what they are offering. It will no longer be enough to say we have good schools, a tropical climate, and a wonderful night scene. People are going to demand more.
Since technology is advancing so rapidly, what does the city offer in that regard. One aspect is likely to be cryptocurrency. Does a city use that as a funding mechanism? In fact, if we extend this out, we can see how it might get to the point where, to lure in residents, places start to promote themselves as tax-free.
Ultimately, politicians and bureaucrats might have to find other ways of funding the services they want to implement as opposed to just taxing the population. If they do not, people might start to migrate elsewhere.
Cryptocurrency is radically altering many different aspect of the world. It is fascinating to watch a lot of this unfold before our eyes. As with everything, there is usually the law of unintended consequences. Here we see some thing that were not planned yet are possible in the future.
In other words, we do not know the full impact that cryptocurrency can have. Who knows, perhaps it replaces our tax systems.
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