Assume that bits are my stock in trade and I use Microsoft Word to refine my raw material: Should I pay a VAT for spellchecking each story? Should I pay a VAT to have it encrypted and another to have it decrypted, not to mention on each of the layers of value added by various editors? In fact, as a cheerful taxpayer, if I have to pay taxes on bits - at least those that make up words - I would be willing to pay a higher VAT for the fewest possible bits: just the right ones, please. That would be value added indeed. __Jurisdiction in jeopardy
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But the most taxing aspect of cyberspace is not the ephemeral nature of bits, the marginal cost of zero to make more of them, or that there is no need for warehouses to store them. It is our inability to say accurately where they are. If my server is in the British West Indies, are those the laws that apply to, say, my banking? The EU has implied that the answer is yes, while the US remains silent on the matter.
What happens if I log in from San Antonio, sell some of my bits to a person in France, and accept digital cash from Germany, which I deposit in Japan? Today, the government of Texas believes I should be paying state taxes, as the transaction would take place (at the start) over wires crossing its jurisdiction. Yikes. As we see, the mind-set of taxes is rooted in concepts like atoms and place. With both of those more or less missing, the basics of taxation will have to change. Taxes in the digital world do not neatly follow the analog laws of physics, which so conveniently require real energy, to move real things, over real borders, taxable at each stage along the way. Of course, even analog taxation without representation is no tea party. __Getting physical
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Looking ahead, taxes will eventually become a voluntary process, with the possible exception of real estate - the one physical thing that does not move easily and has computable value. The US has a jump-start on the practice, in that 65 percent of local school funds come from real estate taxes - a practice Europeans consider odd and ill advised. But wait until that's all there is left to tax, when the rest of the things we buy and sell come from everywhere, anywhere, and nowhere.
- Next: Bandwidth Revisited *
