So, why would Ireland agree to such a deal? Maybe because it does not intend to respect the spirit of the law?
None of this is new. Pharma and finance companies, among others, have been doing this forever, because their value depends mostly on intellectual property, so they’ve been avoiding taxes for a long time.
But this problem is about to enter turbo mode because companies are more global than ever. It’s easy to pressure the local mining company to pay their taxes, or the local manufacturing plant. But how do you tax a company that can put its servers, its lawyers, and its intangibles anywhere it wants? How do you tax the Anywhere companies?
Until now, the answer was: “wherever the headquarters is ”. But what if there’s no headquarters anymore?
Remote Work
Remote work is inexorable. Before now, the headquarters were defined as wherever the main office was and that was where a company had its leadership and the most white-collar employees.
What if companies don’t have a headquarters anymore, and go fully remote, like Automattic (the maker of WordPress.com ), Invision , GitLab , Gumroad , Twitter, Square , Quora , Notion, Zapier , Coinbase , Basecamp , Fujitsu , Hims, Shopify , Dropbox , Skillshare , Spotify, Stripe, Hubspot, Coda, Figma, Trello , Upwork, VMWare, Box, Affirm, Okta, CrowdStrike, Reddit, Docker, Atlassian, Coinbase , Snowflake and REI ?
Sure, as we go back to a certain post-COVID normality, many people will go back to the office. But only a few white-collar jobs will be fully office based, while the vast majority will be hybrid.
I estimate that between 10% and 25% of all U.S. jobs will be fully remote after the pandemic, and I believe that will keep going up. Evidently, fully-remote companies can decide to put their headquarters wherever they want. The more they grow, the more they will avoid taxes.
And that’s corporate taxes. What about individual income taxes?
If Musk can pack up and leave for Texas despite leading not one, but two very industrial companies, what do you think all the remote workers will do? Those who can work from a café on the Lisbon beach and pay a flat 20% income tax ? Do you think they will stay around in high-tax jurisdictions in the long term?
And as corporations and founders and workers start optimizing for their taxes, how do you think countries will react?
Already, digital nomad visas have been approved in countries like Costa Rica, Georgia, Dubai, Cayman Islands, Bermuda, Antigua y Barbuda, Mexico, Australia, Thailand, Germany, Czech Republic, Portugal, Norway, Estonia and Croatia.
These same countries have started offering lower tax rates to compete for the same remote workers, with a 24% flat income tax for newcomers in Spain, 20% in Portugal , a maximum of 22.5% in Greece , between 5% and 12% in Italy , and no local taxes in Croatia . These are countries that usually have top marginal tax rates close to 50%.
And of course, as an American, the one place in the world where you can reduce your federal income taxes is Puerto Rico , where you could pay as little as 4% in income tax and 0% in capital gains incurred while living there.
To be clear, this is a good thing, for them and for remote workers. These countries are just understanding these dynamics earlier than anybody and adapting to the new world before everybody else because people are less mobile than companies, but they are mobile, too. The same way tax havens lower taxes for all corporations by competing for corporate tax income, so will countries keep lowering their taxes to compete with remote workers.
The way they do this today is by keeping a high taxation rate for locals while luring in people living abroad, so as not to drop their current tax income. But you can imagine that as more people do this, these incentives will become more long term. Spain is already proposing to extend the tax benefits of remote workers from six to 10 years.
So as companies and people become more mobile, they will keep shopping around for the best tax deal, lowering overall taxes. That is, when they even pay taxes.
Crypto Taxes
The more that blockchains power the economy, the harder it will be for nation-state governments to track all of these money movements, and the harder it will be for them to tax these movements.
Today, the way governments do it is by regulating local banks, by getting direct data feeds from them, by intervening the international money flows through the SWIFT system, by freezing assets… But how do you do that in a world where all exchanges are decentralized?
This is why the U.S. government freaked out about cryptocurrencies and tried to force every crypto player to report everything. It’s why when El Salvador announced bitcoin would be legal tender , the World Bank refused to help and the International Monetary Fund warned of dire consequences — both of these organisms are controlled by nation states, particularly the U.S.
The nation state fears the loss of its grip on the financial system, without which it’s much harder to force the tax payments it needs. But that trend is imparable.
And if you think nation states will reduce international tax avoidance, ask yourself: are politicians interested in closing these loopholes?
Where are the 336 politicians mentioned in the Pandora Papers from? Source: Pandora Papers, ICIJ
Politicians are the first to take advantage of these rules. They will never close the loopholes.
Limited Fiat Printing
Of course, at the same time, it’s harder to finance yourself by printing money when people don’t use your money.
Countries like Weimar Germany, Venezuela, Argentina and Zimbabwe know well what happens when you print too much money: dramatic inflation and dollarification — people escape from the local currency and start using dollars instead.
Since 2009, however, governments like in the U.S. and the EU discovered that they could print money without dramatic penalties. So they started pumping the printing press.
It took 96 years for the Federal Reserve to print $1 trillion, but six years to reach $4 trillion (after 2009). Since the beginning of the pandemic, the money supply has doubled. But this time, it wasn’t without consequences.
And you have to realize this is the government printing the money and the government telling you the inflation rate. If the normal escape from local inflation is the dollar, where do you escape from the dollar?
This is one of the key reasons why the stock market has been doing so well in the middle of a pandemic. But stocks aren’t a perfect alternative. Cryptocurrencies are, because they’re not denominated in dollars.
The more of the economy that happens through cryptocurrencies, the less the government will be able to rely on the printing press to fund itself.
All of this, of course, is happening at the time when the governments will break under the weight of pensions they can’t pay from taxing workers that don’t exist.
The Demographic Ticking Bomb
All of this is happening while at the same time we’re having fewer kids.
Children per woman. Source .
But — thankfully — we’re living much longer.
Life expectancy between 1770 and 2015. Source .
Unfortunately, most nation-state governments are incapable of raising the retirement age accordingly. As a result, workers must support ever more retirees.
Dependency ratio. Source .
This graph means that a retiree in the 1980s in developed countries like Japan, China and the European Union had more than five workers to pay for her old-age benefits like healthcare and pensions. In Japan, every retiree only has two workers to support her. Europe will get there in 10 to 20 years. The U.S. will follow soon after.
Already today, over 20% of European governments’ spending is dedicated to old-age benefits. If that doubles, how much money will be left? Especially since a big chunk of government income must be spent to service the debt — to pay back all of these bonds we happily buy at “risk zero.”
Meanwhile, the debt keeps piling up in the developed world.
Governments in developed countries are more in debt today than after WWII .
This is the Congressional Budget Office’s (CBO) projection of U.S. federal government debt:
According to the CBO , in 10 years the U.S. federal government will spend half of its discretionary budget on those aged 65 and older.
Escape Velocity
So, just to summarize here:
Nation states with developed economies won’t be able to fund themselves as they’ll have a hard time taxing corporations and individuals because of the internet, remote work and blockchains.
At the same time, they will have a harder time printing money because of cryptocurrencies
They won’t be able to emit debt forever either, because their debt is already through the roof. Servicing it will cost more and more.
This happens just as their costs increase because their population is aging
Instead of doing what they should — realizing they overpromised and correcting accordingly by raising the retirement age — they try to control their technological foes: social media, multinational corporations, mobile individuals, blockchain technologies…
We know how this ends. It happened five centuries ago, when the Catholic Church tried to suppress the printing press instead of reforming itself. It failed because it couldn’t stop the avalanche of technological progress. Within decades of the invention of the printing press, it had splintered, never to return to its glory days again.
For nation states moving forward, there are only two paths. The first one is totalitarianism. They can do like China, split from the rest of the world, and control everything that happens internally, at the cost of destroying development and erasing individual freedom.
The other alternative is choosing freedom, which means competition between many of the 195 countries that exist today, the extreme difficulty of collusion between them, and the unavoidable result of the demise of the nation state.
The only question left is: What will replace nation states? I will cover this in upcoming articles. Subscribe now to receive them .
This is a guest post by Tomas Pueyo. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
