Richard G. Epstein

 

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CONGRESS TACKLES

TAX STATUS

OF VIRTUAL ECONOMY

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Senator Clayton Proposes to

Tax Transactions that

Involve "Virtual Dollars"

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Civil Liberties Group Vows

to Fight Proposal in Courts

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Special to the Sentinel-Observer
by
Iris Werth
Business Reporter

Senator Clayton opened hearings in the Senate Finance Committee yesterday in the hope of clarifying the status of the "virtual economy" with respect to the overall national and international economy. Senator Clayton has proposed that certain transactions that occur in the virtual economy are real economic transactions in disguise and should be taxed under federal value added tax regulations.

The virtual economy started when Richard Wallings, a radical Computer Technologist, set up a bogus currency over the Global Landscape. Called "virtual dollars" he distributes ten thousand virtual dollars every January 1st to everyone who wants to participate in the virtual economy. Since Wallings introduced his virtual dollars (or, virtual money) on January 1, 2019, over one hundred million subscribers have bought into the virtual economy both here and abroad.

The virtual economy involves people trading real services over the Global Landscape for virtual money. Since these transactions involve virtual dollars and not real currency, they are not taxable under the federal value added tax system. The value added tax applies to products during their development. For example, when a farmer sells wheat to a flour mill, a tax is applied to the wheat. When the flour miller sells the flour to a baker, a tax is applied to the flour. When the baker sells the bread to a store, a tax is applied to the bread. These taxes are reflected in the final price of the bread that the consumer pays.

At first, Wallings maintained complete control over accounting in the virtual economy. As the demand for his virtual dollars increased, he helped to establish the Virtual Reserve Bank system, which controls the supply of virtual dollars and maintains the databases that record transfers of wealth in the virtual economy.

The virtual economy works like this. A computer user notifies Wallings that he or she is interested in becoming part of the virtual economy. The user is given ten thousand virtual dollars to play around with and the user receives ten thousand additional virtual dollars every January 1 so long as the user wishes to participate in the virtual economy. Historically, few users have opted out of the virtual economy once they have registered as participants.

Virtual dollars can be used to buy services that are provided in the Global Landscape under virtual economy's Free Resources Network or FRN. The FRN is a registered collection of software resources that are developed and sold within the virtual economy. For example, John Doe in Virginia might develop a virtual reality game and offer it up for sale over the Global Landscape under the auspices of the FRN. Users might pay one hundred virtual dollars for the virtual reality game. In this way, John Doe accumulates virtual dollars that he can spend over the network to buy other resources, such as software tools. Such transactions are not taxable because no real money is involved. The virtual economy is a computerized barter system that has evaded federal and local regulation since its founding nearly ten years ago.

Over the years, virtual money has become more and more like real money. Indeed, real money has become more and more virtual in the sense that most financial transactions in this day and age occur over the Global Landscape. Programmers and other skilled personnel routinely sell their skills within the framework of the virtual economy. Of course, they still need real money to buy real food and real clothes and to pay the real rent, but more and more economic activity has shifted over to the virtual economy.

Under Senator Clayton's legislation a vendor who sells software for virtual dollars will be liable for a federal tax that is to be computed according to a complicated formula that approximates the value of virtual dollars in terms of real dollars. For example, one software package may sell for one hundred virtual dollars and this may be enough to purchase five hours of programming work in the virtual economy. Since a programmer earns about $40.00 an hour in the real economy, Clayton proposes to tax the transaction based upon some percentage of 200 real dollars (that is, five times $40.00).

Richard Wallings has called Clayton's proposed legislation "fascistic", referring to the kind of absolute dictatorship that was common during the middle of the twentieth century. Wallings asserts that taxing the virtual economy will destroy it in short order, thus dampening individual creativity and initiative. Furthermore, Wallings asserts that taxing the virtual economy would violate fundamental freedoms and rights enjoyed by all Americans.

Senator Clayton maintains that the virtual economy was established soley for the purpose of allowing people in the software industry to by-pass the federal value added tax. According to the Senator, billions of dollars in taxable software sales are conducted in this underground economy, raising the taxes for all software vendors who have remained in the "legitimate" economy.

The ACLU vows to fight Clayton's legislation in the courts. ACLU President Martha Adler states that the virtual economy is just a barter system. Ms. Adler defended Wallings as follows, "If I shovel my neighbor's sidewalk with the understanding that when spring comes, he will mow my lawn, these are not taxable transactions."

Senator Clayton called Ms. Adler's comparison to barter ludicrous. "We are not talking about mowing lawns and shoveling sidewalks. The barter system that Wallings has set up on the Global Landscape is specifically designed to by-pass the federal value added tax. The result has been billions of dollars in lost tax revenues. I am going to drive this whole scam out of business one way or the other."

 

CREATING WORK

IN THE GLOBAL

LANDSCAPE

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New Breed of SoftBot
Creates Jobs for
Laid-Off Workers

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Special to the Sentinel-Observer
by
Iris Werth
Business Reporter

When Stanley Uber lost is job with AT&T last January he barely batted an eye. Within minutes after he received his pink slip, a new kind of softbot, or autonomous intelligent agent, had actually created a new job for Stan on the Global Landscape.

This new breed of job creation softbot is the brainchild of Debbie Jones of Silicon Valley Enterprises, Inc. According to Ms. Jones no one who has the technical skills to work on the Global Landscape need ever worry about finding work.

The new softbot is called WantAd. Once you rent one of these new softbots from Debbie at Silicon Valley Enterprises, you can ask it to create a new job situation for you on the Global Landscape. In fact, some people are using WantAd to find new jobs at higher pay than their current jobs.

"The way that WantAd works is pretty simple," Debbie explained via teleview. "WantAd gathers information about what you can do and what you have done. It is especially good at analyzing work products that you have produced. WantAd then automatically constructs a job description, what we call a personal profile, which describes your skills. WantAd then searches the Global Landscape for a situation that matches your personal profile."

"The genius of WantAd is that it aggressively queries sites on the Global Landscape even if they have not posted the need for new hires. WantAd will dynamically change your job description if your job description does not yield a match on the Global Landscape. In other words, WantAd starts with an optimal job description and then compromises incrementally if it has to in order to eventually find a job for the applicant. Thus far our clients have been happy with the jobs that they have found."

Not only does WantAd find you a job, it negotiates your pay and benefits and produces a work agreement with your new employer or employers.

Ms. Jones emphasized that WantAd dynamically creates job situations, even if more than one employer is involved. "Sometimes one employer does not need all of a person's skills. WantAd might create a job for you that involves working for three different employers. You might work 50% of the time for company A, 40% of the time for company B and 10% of the time for company C. The three companies would share in your wages and in your benefits package."

Wall Street experts see the new breed of softbot as presaging a new age in terms of the relationship between labor and management.

Sam Burns, a leading expert on labor and management relations, sees the WantAd softbot as a breakthrough. "I think Ms. Jones, perhaps unwittingly, is going to have a tremendous impact upon the global economy. Her WantAd softbot introduces a new dynamic into the economy, where workers can dynamically renegotiate their situation, utilizing their skills in an optimal way. It brings a new efficiency into the utilization of labor resources that was just not there before."

Burns doubted that Ms. Jones could fully exploit her invention without the backing of a big corporation. "I don't see how one little company in Silicon Valley can realize the full potential of her idea. I see the WantAd technology as evolving into an entirely new working environment where people perform the work as it is needed. I see a whole new era in terms of productivity and efficiency."

Ms. Jones is surprised that Wall Street has taken such an interest in her softbots. "I certainly was not thinking of creating a revolution in management-labor relations," she said. "I was just trying to help workers who were laid off to find new work. I now see that people are using softbots to find better working situations, without their being laid off."

Thomas Green, Professor of Economics at Silicon Valley University admitted to having been caught off guard by the potential of the new job creation technology. "I wonder whether this new kind of efficiency, where a person might eventually get a new job contract every month, every week or even every day, based upon the immediate description of what needs to get done, I wonder whether this might create more unemployment. It may be that Ms. Jones has just opened a Pandora's Box that no one will be able to close."

Professor Green explained that if computers could continuously update job descriptions, matching work that needs to get done with workers who can do that work dynamically, on a world-wide scale, this might tempt employers to fire their regular full-time workers, seeking workers on the fly in the new environment that the new softbots could potentially create.

"I see a workplace that is almost biological in its nature. Millions of organisms struggling to find their niche in a dynamically, ever-changing environment. Is that good? No, I think that Ms. Jones has opened the door to an unfortunate realization on management's part, that they can use softbots to find the workers they need on a just in time basis. This could have the effect of reducing the entire Global Landscape workforce, the most talented workforce that we have, into a workforce of low-paid itinerant workers."

 

 

1997, 1999 Richard Gary Epstein

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