One enforcement challenge of the wealth tax is that wealth that is held in a way undetectable to the tax authority will be able to (illegally) escape taxation. However, traditionally, there were limits on this: If you hold a vault full of gold, or paintings, or some other valuable assets, someone has to guard it. Some country will likely know about it, and, you generally don’t want your money in a country that is not on good terms with the US, so, there may be the risk that the US could gain information about those assets. The physical nature of many assets made them difficult to hide. Financial assets are an alternative, but, they, too, have their downsides. For example, high value bearer bonds, are an option, but, you then had an asset that was not that liquid (and that could likewise be stolen). What the would-be wealth tax evaders longed for was some way to hold assets that was difficult for governments to detect, had a very liquid market, was easily transportable, and where very large dollar values could be stored in very small spaces. Could such a thing exist?
Imagine, then, printing this on a small piece of paper:
E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262
And it, along with any internet connected device, allowing you access to potentially billions of dollars of assets that have a liquid market, are concealable, are not stored by any physical entity with a reporting responsibility to the US government, etc. Wealth tax evader nirvana!
Of course, I am describing a cryptocurrency (the length of this private encryption key coincides with the key used for bitcoin, which is one of the more public and trackable of the cryptocurrencies). As many other ways of holding wealth in secret have disappeared (FATCA is taking over the world, the Swiss can no longer keep secrets, etc.), cryptocurrencies have entered as a potential way for those who seek to avoid wealth taxes to hold assets in relative secret.
It is still true that nothing can be a complete secret. The nature of any asset is that it is generally bought with another asset, and, crypto is no different. The government could still observe dollars (or some other asset) entering the crypto system, you still have to get the asset out of the system to consume it (or, if that consumption is done to some entity to reports to the government, that is observable), the government still has ways to tie wallet IDs to real individuals if they really need to, etc. But, especially as we envision a wealth tax that encompasses more and more people, crypto might be a fruitful place for the wealth tax evaders to stash some assets.
To be clear, I don’t think the average person uses crypto to avoid taxes. But, the potential is there. And a few people do.
