How to launder money, part II

How to launder money, part II
Photo by Paul Einerhand / Unsplash

In part one we learned the only right way to perform money transactions was to add a scent to money – make it entirely digital!

We ended with me positing that the only way would be for the National Bank to do a different job...

Make money stink!

I've linked to the solution above in part I, but it really is the only way! If we have to do a better job at overseeing money transactions making sure that they are legit and executed properly, we need to bring the C-gun -  C for crypto (inspired at least). There are not enough hands in the entire Kingdom of Denmark to manually supervise the transaction of money. Basta!

In a few short years Denmark is to have a fresh set of bank notes. Perhaps we should not -

- perhaps we should have only one "note" - a specially crafted bank note the size of a credit card more or less. Housing a key generator and a few other digital artifacts which working in concert will be able to offer the owner a ways to hold "cash" - in effect being a digital wallet. Before you even voice it: a pivotal task will be to provide this wallet with a host of failsafes, booby traps, and safety mechanisms to reducing the number of mis-uses.

Going full digital money-wise will be about as big a disruption as the first smart-phone. The gains are monumental and will easily cover the necessary increase in compensations paid to owners unlucky to be subjects to what ever small percentage of criminal activity even so.

This is far to important to be handed on a silver plate to the private sector! We cannot make the mistakes of yesterday again! Cases like the telco's, the energy sector, postal service, the national credit card service (danKort), and selling the mortgage companies to a select few banks!

'stinking money' must be controlled and run by Nationalbanken – and built by danish owned and employed personel. Too important.

Tax Heaven

One immediate gain would be a considerable tax cut! With all money transactions suddenly being transparent - an even 15% "tax" on all transactions would revolutionize all sectors! Consider this:

  • buying foreign goods would automagically induce 15% "import duty" – not really but the equivalence of; buying those same goods from your local supplier would cost you 15% vat – not really but it would work just like. There would not be any reason for keeping a tab on incured vat costs. No refund - no reverse vat - no nothing; just a cost like gaz on the trucks or heating the offices!
  • paying workers hourly wages would automagically add income tax. Paying your workforce 10$ an hour would add a dollar fifty in "transaction costs" but then again: that'll be all there would be to it! No reporting, no statements, no controls! And - should any governmental agency pause to ask questions, it's all there in the money trail! Where every single cent came from and who benefited from receiving it.
  • no income tax statements - not for you and not for your business, no statements at all. Because the "taxes" will long have been collected - and probably spent too 😂
  • having your private home renovated by your neighbour and his handy son would add 15% to their asking price for the job (see barter below)

What's the net "cost" to businesses? They'd loose 15% on all purchases but save 25% VAT on all goods/services sold - that goes for the markup too! So buying fashion tee's in India on the cheap at 2 euros and 13 cents (and by the way: yes that is in fact the cost of a fashion designer brand T-shirt) and selling them at 100 euro would net them a substantial win! They'd obviously have to pay 15% once they wanted to enrich the shareholders - but still a considerable win. They would pay considerably less to employees (15% in stead of the current 40-60% income tax) which would allow employees to ask a more modest hourly wage/monthly compensation due to a sizeable increase in their purchasing power (because businesses would be able to compete at a lower price point selling to consumers).

With no deductions, tax rebates, reversed vat schemes, and an incredible amount of laws and regulations being null and void, businesses would not be required to submit statements - each transaction would be settled at the moment of payment processing - and thus would save on accountants, book-keeping, consultants and controllers! The number of work hours spent on chores not making the coffee taste better is mind staggering. With just 1 hour spent on book-keeping, submitting statistics, controlling, more per business per week (and that's a very defensive guess) we end at 300,000+ hours a week! Allowing for digitization to swallow the better part (let's apply the Pareto for good measure) we're still left with 60,000 hours. That's well beyond 3M work hours/year - or 600M in saved costs for businesses (and that number is way off – a better guess would be 10 fold, but I reckon it proves the point anyway). Just by "adding a scent" to money 😉

Public tax administration will be able to focus their attention (and resources) on training AI systems to follow the money trails (follow the stink to paint the picture in a more odorious way, so to speak) and solve issues where transactions have gone wrong for what ever reason (technology issues, mischief, ID10T errors, more)

Wait! What's with the 15%?

Will 15% transaction costs really be able to cover all taxes?

Danish businesses have a total turnover of some 500,000,000,000 each month give and take - an average gross margin of 45 will be a huge approximation but let's keep it in broad terms – which equals costs of some 275,000M; of which 15% is 41,250M and multiplied by 12 months leave us with roughly 495,000M. At present some 3,000,000 are employed and their average income is 370,000 pr year; 15% of which is a total of some 166,500M. That's a total of 661,500M a year in transaction costs.

Hey - hey - hey! You will never get away with asking corporate Denmark to cough up 30%! I wouldn't dream of it! In fact I'm asking businesses to keep more of their money. Sure, they will pay 15% on their costs, no matter what the money is spent on - that's gonna piss off some. But they get to save big time on their reporting, controlling, and submission of statements; and they get to pay way less income tax on their employees, a heavy burden which is going down from 40-60% to a mere 15%.

We left 225,000M on the table every month (the gross margin of businesses, remember?) and it's highly likely that a fair share of that will be offered as dividend to owners and shareholders. Let's make a defensive guess at 50% - which will net us another 202,500M in transaction costs (tax) a year! We'll have a grand total of some 864,000M to "redistribute" – whether that is enough is a totally different story.

Because: at present (2023) the public budget was some 1,313,384M of which 715,510M was used on consumption (wages, more) and 481,256M was transfer incomes (spent by households). 396,000M was spent on wages and at least 40% would be taxes - removing that and adding 15% transaction costs will reduce the overall figure to 273,240M, moving the overall needle from 1,313,384M to 1,190,624M. Like our Utopian example we can reduce the transfer income‚ without reducing the purchasing power, by -20% + 15% => 442,755M, further lowering the grand total to 1,152,124M. A few similar changes could be made but we'd still be at least 200,000M short.

A couple of issues are important to consider

  • we reduced VAT from 25% to 15% - increasing transaction costs on a filtered set of transactions starts the journey down the rabbit hole of complexity and loss of transparency! Either prices will drop and consumers are likely to spend more - or businesses will add another ~10% margin; which anyway will come back with 15-20,000M.
  • reducing complexity in the entire control chain (in fact more or less all together) likely will reduce staff considerably.
  • sourcing "taxes" will cut substantially on arrears (tax payer debts) and largely remove non-taxed incomes all together.
  • disrupting money transactions could be a kickstart to disrupting a number of public sector customs
  • policy-makers will be wise to 'test' the volatility of this transaction cost – starting off slow to maximize success from the get-go

Learn of the fine print in the next part