Photo by Asadyan
“Nothing is certain”, Benjamin Franklin wrote in French to Jean-Baptiste Leroy in 1789, “except death and taxes.” Perhaps he was right at the time, but two hundred and thirty years later we are nearing the point where the death of taxes seems possible.
It can be argued that each person receiving a government service should pay the same portion of their wealth for the service. Basing all taxes on that fundamental principle, one that was once impossible. That will soon no longer be the case. While that is happening, the case for traditional taxes is being undermined by technology and lifestyles.
Governments are scurrying about, trying find sufficient revenue to cover the expense of keeping a greying population in good health and entertained. Unsurprisingly, that has led to the U.S. to find yet another way to punish its expats. It was the first, but not the last. Politicians who hang out in the Fourth Ring of Dante’s Inferno decided that their countrymen and businesses abroad should be punished. So the Fourth Ringers (aka politicians) got to work and developed FATCA (Foreign Accounts Tax compliance Act).
“Gotcha!” they said! American expats and businesses would no longer be able to get the same deal as nationals of every other country. Well, almost every other country. As it turned out, punishing one’s expats and multi-nationals is such great fun that everyone wanted to join in. Soon they published AEOI (Automatic Exchange of (Tax) Information), the globalised FATCA
FATCA Goes Global
FATCA was such a great deal for U.S. nationals abroad that the entire OECD said “Us, too. We’re not going to mollycoddle our expats either!”
Before long over one hundred countries had signed on to the newer, better version: AEOI. Since the other countries didn’t adopt the U.S. attitude of punishing their nationals abroad, the returns won’t be as substantial. Still, AEOI is going to bring money into a lot of treasuries that wasn’t there before. As we know, there are lots of politicians smiling and a lot of expats and offshore company owners crying.
The Rise of the Robots
When I use the term “robot” I’m referring to the entire robotosphere. That covers computers, the Internet, software, AI, things with arms, things with eyes, things with wheels. They are all part of the Internet of Things (IoT). At some point the IoT and the robotosphere will be one and the same. Already they overlap.
The robotosphere has no boundaries. Some countries put up political barriers on the Internet. Those may be restrictions in the peoplesphere but are not in the robotosphere. Robots work together in harmony in China, Pakistan, Russia and the U.S. at the same time. They cross political boundaries and through political barriers without a hitch. Already we have robots on Mars, others are touring the planets and one is headed out past the solar system and into the galaxy. We humans look rather petty. Just ask your favourite robot.
One of the characteristics in the robotosphere is distributed intelligence. Another is ephemerality. Processes in a dozen locations may come together to do something and moments later move on to a dozen other projects in as many other locations. A sort of being with a sort of consciousness existed for a few moments and then it was gone. Mr Tax Man, who ya gonna tax?
Toss a problem into a pool for solution and fifty robots in forty countries will contribute to the solution. There’s no revenue. There’s no locus of production. How can it be taxed? Use the latest 3D printer to make a dining room table from recycled materials using a free plan and code that is housed in the cloud. What can you tax?
Amazon in the Robotosphere
Those who buy from Amazon think of it as a company that sells things. From the day of its inception, though, Amazon has been a software company that sold things as a way to support itself. That wasn’t the plan Jeff Bezos and his fellows had, but that was how to solve problems. As Amazon pioneered the way to becoming a global powerhouse without ever making a profit it put robots at the center of its business. Amazon is a leader in creating the robotosphere. The robotosphere is creating Amazon.
Robots are driving down the cost of almost everything. If goods were properly priced, they’d be ninety percent cheaper than they are today… the rest is simply compounded profit margins and taxes. Eliminate compounded profit margins and rationalise tax collections and we’d come close to that. Amazon has no profit to tax. Increasingly fewer people have sufficient income to tax, a process that will accelerate.
The Überization of Transport
For most people, automobile ownership is going to be unnecessary. Über, Lyft and many others are paving the way to a future without automobile ownership for people in cities and suburbs. Robot cars and trucks will make them unnecessary in the exurbs and rural areas as well although it will take longer. The car will cease to be your certificate of identity, showing that you are wealthy, or adventuresome or a rugged hunter. Most importantly, they’ll cease to be effective generator of sales taxes.
Even worse for Mr. Tax Collector, Über’s robotic cars won’t even need drivers. Robotic trucks and robotic cars will destroy millions of jobs. Those are millions of people who will move from generating taxes to consuming government services without paying taxes. Are we going to raise road taxes to cover that cost? How will either FATCA or AEOI help fund a government dependent on income taxes from folks who have been replaced by robots?
Today most aircraft pilots are almost superfluous insofar as routine travel from A to B is concerned. We can easily make them superfluous if we wish. Cockpit crews have gone from five to four to three to two over the years. There is nothing in history to make us believe that this trend can’t continue until it reaches zero.
Überization in Asia
It is claimed that Über will have a great deal of problem being viable in many Asian countries because of the plethora of taxis. My instinct is that that is not true for several reasons:
- The transportation selections that people make are based on habit and necessity. Necessity has a way of changing even the most ingrained habits quickly.
- Although many Asians have what seems to be a plethora of taxis during the period when they are most needed, they seem never to be available at the most important times such as during rainstorms, at lunch break and after work.
- In even the best-served cities it is frequently necessary to go to a fairly busy thoroughfare in the hopes of being able to hail a taxi.
- The uncertainty of if and when one will be able to hail a taxi, especially during times enumerated in #1 above is often the cause of late starts for meetings and a consequent drop in productivity.
There is an additional factor to be considered and that is the Überization of minibuses. Experiments with this sort of service is proving to be successful even in semi-rural environments. This approach would seem to be ideal for many locales.
Changing Housing Habits
Home ownership has been the sine qua non of middle class success since the middle class began to rise in the 19th century. If you didn’t own your home, you couldn’t really consider yourself to be part of the middle class. That is changing and will do so with increasing rapidity as time goes on.
Japan is probably the stand-out example for this trend.
The main drivers for home sales are:
- Scarcity
- Expected price appreciation.
- Declining relative payment size during ownership due to inflation
- Relative value compared to renting
- The need to impress others
In the case of Japan, they are faced with a declining population. Housing units are not scarce. Because of that, prices have not appreciated for two and a half decades. As of late there has been some speculative rise in Tokyo in the hope that Abenomics II will get the economy moving.
Twenty-five years of deflation means that the cost of the payments on fixed rate mortgages has increased as a percentage of take-home pay.
In a society with a declining population and declining home prices, rental units, with their inherent flexibility, offer more value than home ownership.
And finally, the upcoming generation of young folks put more emphasis on who you are and what you do than they do on what you have. Big homes and expensive cars don’t impress them nearly as much as they do their parents.
As a society becomes more and more willing to rent rather than buy, it makes property taxes less and less viable as a base for assessing taxes.
The Final Act
As incomes fall and the population greys, governments will scramble to find other sources. FATCA and AEOI are simply the leading edge of this phenomenon. Not only that, sales taxes will be insufficient to fund government and the old standby, tariffs, will lose their value as just-in-time on-site manufacturing strangles commerce. As governments reach across international borders to try to scoop up a bit more revenue they will find that it is a drop in the bucket compared to their needs. When salaries and costs are deflating, where do governments go for their funds?
Surprisingly, we already have part of the answer – they steal your savings, but not through FATCA or AEOI. Switzerland and Japan are already stealing from savers through negative interest rates, hoping that this will kill deflation. In Cyprus they were even more blatant – they took the money, they took the savers’ money, bailed out the banks and told the savers not to worry, they’d get their money back someday. That’s what you do when the government has no money; you go to the people who have it.
Where to from here? Possibly funding government exclusively through user fees based on individual net worth. Under this system, a government service that a person with a net worth of $1 million was charged $1.00 for, a person with a net worth of $1 billion would pay a thousand dollars for, reflecting the relative value to each of them. By linking databases and with the AEOI and FATCA rules and treaties in place, this would be quite practicable. Whether it is politically viable is another question altogether. The one thing that we can be certain of is that whatever actions are taken, they will be taken long after the crisis has already unfolded.
F.G. Bouman
