NCPA - National Center for Policy Analysis

Mr. And Ms. Tax Collector Meet Cyberspace

December 8, 1995

As much as half the private sector's products could eventually be made available through cyberspace. Experts predict that within five years many non-traceable ways of paying for such services over the Internet will emerge -- along with acute headaches for those who collect the nation's taxes.

  • A number of cutting-edge technology companies are developing so-called E-cash payment alternatives which will be impossible for national authorities to police.
  • For instance, if Smith pays Jones for a service by having a financial institution in the Bahamas debit Smith's numbered account and credit another anonymous account at a different institution, there is no way for the Feds to know which individual is paying or receiving the money.
  • The increased use of "smart cards" instead of cash will also make the job of the tax collector that much more difficult.
  • Because encryption codes will likely be necessary, the government has embarked on a campaign against encryption -- forbidding the export of encryption devices except to a few specified companies and governments.

If the government wants to continue collecting taxes, it will have no choice but to bring down rates to a level which will encourage voluntary compliance.

Source: Perspective, "The IRS vs. Cyberspace," Investor's Business Daily, December 8, 1995.


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