Which taxes still work when financial transactions are untraceable?
With the advent of online currencies, the opportunities for tax evasion are growing ever larger. When the costs of tax evasion fall, people will evade more, but to a widely varying degree based on the tax.
Taxes which won’t work
Sales – If the buyer and seller both don’t report it, the authorities won’t see the transaction and can’t tax it. Perhaps they could monitor shipping more closely, but that is difficult.
Labor/Production – Taxing work requires the cooperation of the employer or the employee. It is difficult to levy taxes when you can’t evaluate the value of the product, especially when the product is just 1s and 0s. And if the product is physical, 3D printers will make production more small scale and harder to trace.
Capital gains/Financial transactions – Quite possibly the hardest thing to tax even now. Financial securities are essentially bets, and only the bettors need to know of the existence of the bet. Capital gains could be paid stealthily, or even initial funding could avoid official channels. As it is, financial regulation is already totally ineffective at reigning in the shadow banking sector.
Taxes which will work
Import/Export – Governments already guard their borders. It is not too difficult to stop anyone coming in or leaving and charge them a fee depending on what they’re moving. As manufacturing gets smaller and smaller scale, this trade will be mostly rare raw materials. Knowledge trade will be/is difficult to track and tax.
Natural resource extraction – Mining requires large, stationary capital investments, and is very easy to observe. Governments can simply measure the amounts of resources being extracted and tax them (or extract the resources themselves).
Property taxes – One of the most fundamental things any government does is define who owns which land. Governments will always be able to tax land so long as they know who lives there. And if no one comes forward, they can seize it and resell it, so either way, they win. I’m a fan of Georgism, so I’m fine with this route. Amenities are often local, so the burden of taxation should reflect approximately who benefits from government spending.