There are any number of ways the government could gather money to fund the state. They could choose one person a day and take all their assets; they could number every penny of currency (paper or electric) and appropriate everything ending in a randomly selected number on the first of each month. These are lottery systems. Instead, we have a threshold system.

The quantity of money hoarded is not taxed; it's the flow of money that is all-important. Money is always in movement--in that sense it's like an aeroplane (which must always fly otherwise it'd fall or sit on the ground), or electricity, or weather. As money moves across thresholds, then it's taxes. This is just pragmatic: it's too hard to implement a taxes if it's based on a lottery or the size of a hoard. We must treat tax as static in the medium that is between individuals (corporations are individuals) in finance-space; tax is loss in the signal.

I don't like the tax system now for two reasons: First, I don't like models that presuppose a collection of individuals making transactional exchanges. The world is fuzzier than that, and our tax system deals with it at great expense--we have exceptions for families and the different contexts of individuals (buying for self or buying as a company representative), corrections to avoid money being taxed twice (what are we taxing again?). VAT disappears among businesses--why are they privileged to run in a tax-free world? The tax code is attempting to reach some kind of mythical balance, but has forgotten what it's all about. Second, taking a levy every time money moves across a threshold made sense when money was an abstracted form of value, because you'd only ever move money to compensate for a corresponding - and reverse - flow of value. It is clear, in that world, what taxes pay for: taxes pay for finance-space border police. They pay to keep value and money balanced; to keep individuals from cheating (by funding a legal framework and practitioners to deploy and enforce it); to protect money and value in transit.

I don't get any of this now. I pay for a digital track on a credit card. My credit card comes with insurance; my music isn't going to be pilfered (besides, it's non-rivalrous). If I give somebody money using PayPal for a product on eBay, those parties take their cuts because I'm getting something from them: police (in the form of reputation); exchange security (in the form of escrow); delivery.

Let me say this: The state should tax me. I agree with that on principle (although I'm happy to try out other ideas). But while the threshold they've chosen for taxing money flow has worked historically, it doesn't make sense now. It doesn't hold together. And now that has happened, money gathering is happening for its own sake. I wouldn't mind if it was being grabbed to enrich the evil overlords, at least then taxation would have a purpose. What I'm scared of is taxation collapsing into its own functional system which doesn't reference the outside world. That would make it impossible to discuss without shifting the discourse into its own terms, which would be the same as supporting it. What taxation needs, then, is underpinning.

I propose that tax gets back to basics, and joins completely to the legal (and justice) systems. Put simply, if an exchange of money involves reference to the established legal system of a country, a royalty must be paid to the country.

Think of the legal framework as code, or better, as code libraries, maybe even a complete application framework. Contracts - to supply goods, remain on a payroll, buy time, whatever - are classes of new code that sit on top of the framework. They are inert, to begin with. Like stones in Go, or like fielders in cricket, they act not by being active, but by the potential for action: they are powerful in standoff. Contracts are legal counterfactuals (we hope, every time). (If a contract is activated, that's like instantiating the code and running it to discover its conclusions--the outcome code can't be known without running it.) When a contract makes use of the legal framework, constructed over a 1000 years, it is calling out to an external API. Not just that, but in a piece of wonderful service design, the government promises to enforce that API, with the powers at its disposal. Tax should be paid for that service.

Companies would pay tax to employ people, so they can enforce their contracts. Banks would skim off tax on transactions when you make a payment, so they can enforce their contracts. Every purchase in a shop would include tax, because there's a consumer rights contract you're paying for. PayPal would pay tax, because they need recourse to debt collectors if there's fraud. Of course, PayPal could eat any fraud problems with a good insurance policy--but then the tax would come out of their insurance payment policy (otherwise the insurance company could rip them off). And companies could build their own police force and legal framework--but they dodge tax at the moment, if they're not already in an exception loophole, and it'd probably be cheaper to leave it to the government than build their own. No tax return required, either. Tax is taken live, at the point of contract.

For transactions where there's a lot of trust, between individuals or with local traders, there's no need for tax. Sure, that means in places where there's high social capital, the tax revenue will be correspondingly lower--but isn't that an incentive we'd like to have in place?

Some worries: A lot of laws are about behaviour, what about them? Also, this system would turn legal protection into a luxury that many would chose to risk doing without. I like that there can be many different tax systems, all addressing an appropriate threshold in the flow, but what is a good threshold for local amenities?