Closing the Bitcoin Tax Gap
The tax gap is the difference between what is owed in taxes and what is collected. Over the past decade, the tax gap came up twice before the revenue committees and has been mentioned more frequently in other hearings. about tax enforcement and postings on the Tax Policy Center's TaxVox blog. It is the magic bullet in tax reform. Policy makers are sure that the deficit would be gone if the gap were breached so that everyone would pay their fair share rather than having to impose higher marginal rates.
Wait Staff are very much aware of tax gap enforcement. It is why they literally live off of their tips and are part of the equally famous health insurance gap. Their earned wages go almost entirely to the IRS and FICA, assuming that managers submit them rather than pocket them. A good deal of the tax gap comes from such theft. This situation came about because some wait staff and bartenders make huge money on tips and don't report them. Sadly, the high earners are the exception, not the rule.
Concerns about rich service employees and the "underground economy" that also includes domestic workers, undocumented workers, the unlicensed pharmaceutical market and paid sex workers have led to wait staff not being paid, the health insurance gap and the proposed Fair Tax.
The latter is only a talking point. Although underground workers would pay consumption taxes, they already pay the implicit consumption taxes we all pay through the income taxes of the people providing us goods and services. The Tax Gap will persist unless workers in the underground economy collect the Fair Tax as vendors. This is not likely. Working in the underground economy is not a choice. Being scorned is part of the cost of being poor.
A higher minimum wage, an end to the tip wage (with an automatic gratuity and payments over it are not taxed) and a living wage negative income tax for each child would mostly end poverty and the need for an underground economy. This is even more so if drugs and sex work were decriminalized, removing the violence that comes with legal prohibition.
The underground economy tax gap and the insurance gap could be ended with child and insurance benefits being paid as a credit against a subtraction value added/net business receipts tax or paid as a subsidy; a Goods and services/invoice VAT and a $75,000 standard deduction to an individual wage and salary tax (no joint filing).
The bigger part of the tax gap is the ability to under-report or simply evade capital gains taxes which should be paid as part of income tax filings. It is not easy to track the profit on each share and it is easier to game this to minimize taxes paid.
When an asset is inherited, the capital gain earned in life is never taxed, only the gain from inheritance to sale. If the asset loses value, the inherited asset is tax free for all but the very wealthy. There are many ways being rich comes with tax advantages, as well as in education and opportunities.
The rich can even purchase members of Congress to maintain their wealth. Consumption taxes are opposed because they cannot be evaded. The hidden income tax paid by others, including accountants, is an implicit tax. This makes it impossible to avoid except for the services of underground workers, essentially slaves.
How does this relate to Bitcoin? It is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.
Bitcoin is taxed as a capital gain rather than as cash. Capital gains taxes are paid if it is held for a year, but the rate is still lower than other collectibles, which are taxed as regular income. The 2013 Guidance was not a welcome development for Bitcoin investors and creators, but things could have been worse. Like any capital gain, taxes can be at least partially avoidable, although the nature of Bitcoin as information could make it less so with stronger reporting requirements.
As I said, it could be worse. Indeed, making it worse would rapidly deflate the asset inflation bubble now forming at a change collection, computer terminal near you, or your smart phone. The differential between wage taxes and capital gains taxes, as well as quantitative easing by central banks are the air which fills these bubbles, until they burst.
Claims that it has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product.
Congress can deflate all asset bubbles by dropping the distinction between long and short term assets, as well as collection as part of what is essentially a voluntary income tax filing. (Know anyone who pays their consumers use tax? You would if purchases were tracked and reported.)
The technology to track any asset and its value added is easy and is simply not done. If we do it, the incentive to grow bubbles is slowed down, although not negated. We can't have everything.
Capital gain, rental, dividend, inheritance and gift income could be taxed at the point of sale as an asset value added tax. An asset VAT collecting what would be equivalent to a 22.5% capital gains rate, half way between the 25% Democratic and the 20% Republican top rates enacted or 18.47% of price.
The 15% rate provides the appearance of progressively. If it is really an issue, increase data reporting and send refunds to anyone making under $75,000 a year.)
As now, procedes from sale to a qualified broad based ESOP (not a management group) would be zero-rated. Unlike now, there would be no carryover tax break upon inheritance. Purchasers would pay the A-VAT and heirs would get no rebate. No farm or business would have to be sold to pay taxes, but when they are sold, taxes come due on any sale, even a loss.
Asset VAT would be almost impossible to game and would slow down speculation. It is time to discuss it, put the talk of a tax gap to bed, or at least make crypto-markets pay for their fun with campaign contributions (knowing that the world is watching).
Wait Staff are very much aware of tax gap enforcement. It is why they literally live off of their tips and are part of the equally famous health insurance gap. Their earned wages go almost entirely to the IRS and FICA, assuming that managers submit them rather than pocket them. A good deal of the tax gap comes from such theft. This situation came about because some wait staff and bartenders make huge money on tips and don't report them. Sadly, the high earners are the exception, not the rule.
Concerns about rich service employees and the "underground economy" that also includes domestic workers, undocumented workers, the unlicensed pharmaceutical market and paid sex workers have led to wait staff not being paid, the health insurance gap and the proposed Fair Tax.
The latter is only a talking point. Although underground workers would pay consumption taxes, they already pay the implicit consumption taxes we all pay through the income taxes of the people providing us goods and services. The Tax Gap will persist unless workers in the underground economy collect the Fair Tax as vendors. This is not likely. Working in the underground economy is not a choice. Being scorned is part of the cost of being poor.
A higher minimum wage, an end to the tip wage (with an automatic gratuity and payments over it are not taxed) and a living wage negative income tax for each child would mostly end poverty and the need for an underground economy. This is even more so if drugs and sex work were decriminalized, removing the violence that comes with legal prohibition.
The underground economy tax gap and the insurance gap could be ended with child and insurance benefits being paid as a credit against a subtraction value added/net business receipts tax or paid as a subsidy; a Goods and services/invoice VAT and a $75,000 standard deduction to an individual wage and salary tax (no joint filing).
The bigger part of the tax gap is the ability to under-report or simply evade capital gains taxes which should be paid as part of income tax filings. It is not easy to track the profit on each share and it is easier to game this to minimize taxes paid.
When an asset is inherited, the capital gain earned in life is never taxed, only the gain from inheritance to sale. If the asset loses value, the inherited asset is tax free for all but the very wealthy. There are many ways being rich comes with tax advantages, as well as in education and opportunities.
The rich can even purchase members of Congress to maintain their wealth. Consumption taxes are opposed because they cannot be evaded. The hidden income tax paid by others, including accountants, is an implicit tax. This makes it impossible to avoid except for the services of underground workers, essentially slaves.
How does this relate to Bitcoin? It is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.
Bitcoin is taxed as a capital gain rather than as cash. Capital gains taxes are paid if it is held for a year, but the rate is still lower than other collectibles, which are taxed as regular income. The 2013 Guidance was not a welcome development for Bitcoin investors and creators, but things could have been worse. Like any capital gain, taxes can be at least partially avoidable, although the nature of Bitcoin as information could make it less so with stronger reporting requirements.
As I said, it could be worse. Indeed, making it worse would rapidly deflate the asset inflation bubble now forming at a change collection, computer terminal near you, or your smart phone. The differential between wage taxes and capital gains taxes, as well as quantitative easing by central banks are the air which fills these bubbles, until they burst.
Claims that it has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product.
Congress can deflate all asset bubbles by dropping the distinction between long and short term assets, as well as collection as part of what is essentially a voluntary income tax filing. (Know anyone who pays their consumers use tax? You would if purchases were tracked and reported.)
The technology to track any asset and its value added is easy and is simply not done. If we do it, the incentive to grow bubbles is slowed down, although not negated. We can't have everything.
Capital gain, rental, dividend, inheritance and gift income could be taxed at the point of sale as an asset value added tax. An asset VAT collecting what would be equivalent to a 22.5% capital gains rate, half way between the 25% Democratic and the 20% Republican top rates enacted or 18.47% of price.
The 15% rate provides the appearance of progressively. If it is really an issue, increase data reporting and send refunds to anyone making under $75,000 a year.)
As now, procedes from sale to a qualified broad based ESOP (not a management group) would be zero-rated. Unlike now, there would be no carryover tax break upon inheritance. Purchasers would pay the A-VAT and heirs would get no rebate. No farm or business would have to be sold to pay taxes, but when they are sold, taxes come due on any sale, even a loss.
Asset VAT would be almost impossible to game and would slow down speculation. It is time to discuss it, put the talk of a tax gap to bed, or at least make crypto-markets pay for their fun with campaign contributions (knowing that the world is watching).
posted by Michael Bindner at 5:33 PM
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