We don’t really need taxes

We are used to the concept of taxes. They were exercised by many entities through history, from feudal lords to modern governments. In principle they don’t differ much from paying for services, given out by someone controlling the land in which activities are carried out.

For example, you could say that slaves paid their feudal lords, in exchange for land to work on. Except… well, that would be quite a stretch. And here’s where taxes differ from market transactions. They are not exactly like two parties mutually consenting into entering an agreement and equally benefiting from it

Most of the time the tax payer doesn’t opt into paying taxes. And certainly most of the time the tax payer doesn’t read the agreement specifying the services to be carried out by the nation, and their price. Probably because there isn’t such thing to read! It’s not an opt-in agreement in which both parties are equals.

It’s a massively tilted power dynamic: me, the nation state, a god-like institution, and you, peasant, here to serve me.

It tilts even more when you factor in the friction of opting out. Most people live the first two decades of their life in a nation, with a particular language, a particular culture and most importantly, a social circle and other attachments. Just like babies are forced into baptism without their consent, citizens are forced into constitutions signed decades or centuries ago.

If you don’t find the content you want on Netflix, you cancel your subscription and stop paying. You can migrate to Amazon Prime, you can torrent, or you can just be. What happens in a nation state if you stop paying? People with guns go to your home and take you here:

The closest thing you can do — with massive friction — is shop around for another jurisdiction that offers you a better deal. Some traditional nation states are already taking the smarter route and capitalizing on this jurisdictional competition. But, still, trad states are doing it wrong. Let’s come back to square one. Why do you really need taxes?

Of course, nation states are capital-intensive machines. And without taxes, as the statists often ask “who will build the roads?”.

When I moved to Switzerland, I discovered they have the best roads in the world, with some of the lowest taxes in the world as well. It turns out you don’t need 25% cap gains tax and 45% income tax to build great roads. How? They tax smartly.

There’s no cap gains tax in Switzerland, and income tax is quite low. Because of that, individuals can accrue and grow their wealth faster than people in other states. What Switzerland has, that’s not common in other nation states, is a wealth tax.

The rationale is simple: Switzerland provides a system of law, creating legal guarantees around private property, safety and other things needed to live a good life. That costs money, and as the value to secure grows, the costs do too. So Switzerland takes a small bite out of your wealth every year. It also aligns incentives — the better you do, the better we do.

They know that free markets work, and they know that entrepreneurial individuals are always better than nation states at making money. So why try to centralize wealth creation in the state, when you can outsource it to your citizens and just focus on providing them a great service?

So we are reaching the first conclusion of this post: proper incentive alignment allows nation states to reduce their taxes by an order of magnitude, yet outperform other jurisdictions. But we can do better. We don’t need taxes, at all. Let me expand. Thinking in macro-economic terms, taxes do two things:

  1. They take money out of the people’s hands to fund the state’s operations

  2. They create demand for the nation state’s fiat currency

The problem with taking money out of the hands of individuals is that the state is almost always a worse capital allocator than free markets. So it makes the nation’s internal economy less efficient.

There’s no problem with increasing demand for the nation state’s fiat currency, but fiat currencies are by definition inflationary, so the best you can do is slow their decline in value. Now here’s the twist. What if we could create a system in which:

  1. The nation can fund its operations and enhance its services

  2. While not taking money out of the market

  3. And effectively paying the citizens for being part of the nation

Sounds utopian, but it’s not. Enter Web3 meets nation states!

A revolutionary component of Nation3 is $NATION. People need to lock up $NATION to become citizens and receive Nation3’s services. The more value the services add, the more demand for $NATION. Since the Nation3 DAO owns a significant portion of the supply, more $NATION demand means the DAO gets wealthier.

In turn, citizens don’t actually pay anything. They lock up $NATION during a given timeframe, but when that time comes, they can withdraw it. It’s fully theirs. They are very incentivized for Nation3 to do well.

As more economic activity happens on the Nation3 jurisdiction, like business transactions between individuals or DAOs, more assets are secured by services like the upcoming Nation3 Court, and $NATION benefits from a proportional increase in demand.

Such increase in demand funds the Nation3 DAO so the community can keep enhancing the services. But it also has the power to pay citizens back for their early support.

While it’s too early to solidify the value accrual model for Nation3, one thing is certain: Web3 and our online-first approach gives us a massive edge versus trad nation states.

PS: This post’s NFTs are available to buy as an experiment to fund the Nation3 Writers Guild — a group of contributors spreading the word about the Nation3 mission.

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