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Peer-to-Peer Taxation
Pages: 1, 2, 3, 4

The bottom line

How much of an impact might such a system have on the way public services are funded? A good way to answer this question is to look at this from the top down. Although a system like this won't be implemented overnight, these rough estimates underscore the potential size of a peer-to-peer tax market.



To calculate the potential size of the market, use the following formula.

M = P x tavg x tp2p

where

M is the total size of the market in dollars
P is the size of the population
tavg is the average per capita tax bill in dollars
tp2p is the percentage of taxes that citizens have control over

Next, plug in some numbers to estimate the size of the market for your community.

Example 1: Urban Center (San Francisco)

P = 700,000

tavg = $850/person-year (sales tax: $10,000/year in per capita sales x 8.5%)

tp2p = 30% (taxpayers vote on pro-rated sum representing 30% of their share of sales tax)

In this example, M, the minimum size of the peer-to-peer tax market, is $178,500,000 per year, a respectable amount of money for a medium-sized city. Note: this rough estimate does not include taxable business-to-business transactions, nor does it include real estate taxes.

Example 2: United States (Federal Income Tax)

P = 272,000,000

tavg = $5,000/person-year

tp2p = 30% (taxpayers control use of 30% of their income tax bill)

In this example M works out to USD$408 billion per year, a large amount of money by anyone's standards.

This money wouldn't appear out of thin air. It would come at the expense of existing centrally managed budgets, and would most likely be phased in over time (with taxpayers being able to route a larger and larger fraction of their total bill through this system each year). With time, the market would learn which services were best left to the government to provide, and which should be handled by independent agencies.

There would also be an ongoing debate over the best value for tp2p, the percentage of taxes directly controlled by citizens. Some will favor a paternalistic "government knows best" policy, with tp2p closer to 0%. Others will favor giving most control to the individual, with closer to 100%. The optimal value will be somewhere in between these two extremes, large enough to give voters a significant voice in the budgeting process, yet not so large that the system destabilizes the government's own budgeting process.

These are rough estimates, but it doesn't take much insight to recognize that the size of the market could be large indeed, especially if such a system were to eventually enjoy support at the local, state, and federal level.

Building the network

In many respects, this is not a new idea. Long before the concept of central government existed, communities voluntarily pooled and shared resources without the need for a complicated tax code.

What is new today is the arrival of cheap, pervasive computation, a capability that would make the process of capturing and consolidating billions of individual funding decisions from taxpayers economical. Transmitting these instructions to a tax collection agency should be no more complicated than completing an online form. The main obstacle to creating a system like this is political, not technological.

Amazon.com has already built more sophisticated systems for online shopping. This system does not need to be built from the top down. It can be built in patchwork fashion, starting in urban communities. Cities are an ideal place to start because their citizens are generally politically active and involved in their communities. They also face societal problems that defy conventional solutions, and that will not simply go away if ignored. Cities are also large enough that they can support larger and more efficient peer-to-peer tax markets than small communities.

Creating a peer-to-peer tax system in a city is easier than overhauling the state or federal tax system. The formula is actually quite simple. The city would tally sales and property tax payments for the year. The total amount is then divided by the number of registered voters to yield a per capita sum. Each voter is then allowed to vote on how a percentage of that per capita amount (10% to 30% for example) is to be disbursed to registered public and private agencies. Voters submit their instructions via an online form or printed form (for those without access to the Internet). The local government then acts as an agent in disbursing funds according to voters' instructions.

The advantage of this approach is that it will be possible to test the system fairly quickly and cheaply. All it will take is a handful of communities to take the lead in testing variations on this theme. It will become apparent within a few years which approaches work best, what types of rules and regulations are required to keep people honest, and whether the idea of peer-to-peer taxation is better than entrusting the government to handle everything.

What is perhaps most interesting about this system is its potential to reverse voter apathy. Our elections provide only a crude form of feedback to elected officials. Consequently, we often feel like our opinions are ignored in the process of flipping a lever to make a simplistic yes/no decision.

In a peer-to-peer system like this, voters would have a direct voice in how some of their taxes were put to use, and could direct resources toward agencies and programs they know and trust. The results of casting a vote in this new system would be much more tangible. If you neglected to vote in a system like this, you really would be throwing your vote away.

Although this is just a thought experiment, it's something worthy of consideration. The Internet is often hyped as the most important invention since the printing press. Each time we've invented new ways to communicate, government has been changed by the new technology. If the Internet is as important an invention as it has been proclaimed, it too will change the way we govern ourselves.

This is just one example of how this could happen.

Brian McConnell is an inventor, author, and serial telecom entrepreneur. He has founded three telecom startups since moving to California. The most recent, Open Communication Systems, designs cutting-edge telecom applications based on open standards telephony technology.

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