Episode 42 — Transactional Justice, or the Magic of Tax Cuts.
The reason the My Number card was so unpopular in Japan was that while the practical benefits for the residents were thin, the "convenience of the authorities" was transparently obvious. Humans instinctively loathe being unilaterally managed.
(…In modern Japan, the burden was so high it was often mocked as "Five-for-the-Lord, Five-for-the-People." Income tax, residential tax, and on top of that, social insurance premiums. Then, if you actually managed to buy something with the money left over, consumption tax hit you like a finishing move. You’re being sucked dry of nearly half your earnings, yet you rarely feel the benefits.)
While I was pondering such things, Gustav and Elishua arrived today as well. Neither of them looked particularly happy.
“Mr. Zect… the creation of the Management Plates is progressing, but the residents are skeptical after hearing the explanation. They say things like ‘our freedom is being stolen’ or ‘the authorities are spying on us.’”
“I can’t say I blame them,” Elishua added, her shoulders slumping. “Even though it’s my masterpiece, some people are even calling them ‘Cursed Plates’…”
“…To be honest, what is the plan? Do you intend to use these plates to… for example, monitor the movement of every single coin?”
“Of course not. That sounds like way too much work.”
I gave Gustav that answer as I sank deep into the sofa, then turned to Elishua.
“Elishua. Those Magic Plates—they can synchronize, but they don't have a built-in ‘calculation function’ for complex addition or subtraction, right?”
“Wh-what? Oh, no. They can display text and numbers as they are, but…”
“Elishua, I want you to create ‘Transaction Record Plates’ for the shops. Here’s the configuration. Ready?”
I began sketching a diagram on the table.
“First, we create [Management Plate A] to record daily sales on the shop side. This will sync in real-time with [Duplicate A'] at the government office. That’s the first layer. …Gustav, what’s the tax schedule in this country?”
“Yes, it is standard to pay the previous month's portion by the 15th of every month. That is the general deadline for tax collection.”
“Good. Then, the second layer. We create [Management Plate B] to record monthly sales. This also syncs with [Duplicate B'] at the office. Shops will pay their taxes based on the numbers in [B].”
“I see… But Mr. Zect,” Elishua tilted her head. “That’s exactly what the shopkeepers will hate. Their sales will be completely transparent to the authorities.”
“Exactly. That’s why we give them a carrot. …Gustav, in exchange for introducing these record plates, let’s slash the current ‘Head Tax’—the tax you pay just for existing—down to one-tenth. Furthermore, we’ll cut the existing sales tax as well.”
“O-One-tenth?! But the territory’s budget would…!”
“Listen, Gustav. Taxes shouldn't be too high. The fact that you’ve accumulated enough funds in this frontier to build a whole new city is proof that your previous tax rates were way too high. Money shouldn't be hoarded; its value comes from circulation. We can make up the deficit by driving the economy. Our goal is a ‘Commercial Hub.’”
“…A Commercial Hub?”
“Right. Lower the taxes to attract people and increase the number of transactions. …Gustav, there’s a story about a city that suddenly appeared in the middle of a desert and gathered the world’s greatest wealth. There, they almost entirely eliminated income and head taxes to lure merchants and the wealthy from all over the world. When people gather and goods flow in, the city prospers naturally.”
Gustav was speechless, asking back in a trembling voice, “World-class wealth… without income or head taxes? Mr. Zect, does such a dream-like story truly exist…?”
“Yeah, it did. …And Felsen is going to do the same. We won't take much from individuals; we’ll take a thin, wide slice from ‘transactions.’”
Gustav still looked like he couldn't believe it, but he voiced a practical concern.
“…I understand the logic. However, if the government office has to aggregate the totals of countless shops, how many civil servants will we need…?”
“The office will basically do ‘nothing.’”
“…I beg your pardon?”
“The duplicates of the Transaction Record Plates at the office will usually be left alone. However, the mere fact that they exist puts pressure on the merchants, knowing they ‘can be seen at any time.’ …Instead, we will conduct occasional ‘Audits.’”
Gustav leaned in. “…Audits?”
“Yeah. For example, if a shop’s inventory orders and reported sales are clearly out of balance, or if a shop looks ‘suspicious’ based on its size and foot traffic, the officials go in and investigate. Even if they aren't suspicious, it’s probably a good idea to check them once every few years anyway. You just confirm if they’re recording things properly on the Management Plate. …Listen, Gustav. The secret to minimizing management costs isn't ‘perfect surveillance,’ it’s ‘effective auditing.’”
I took a sip of cola and spoke with cold detachment.
“Also, we’re going to make the penalty for fraud devastatingly heavy. No soft ‘amended returns.’ In malicious cases, it’s total asset forfeiture and exile from the territory. Don’t try to balance the crime and the punishment; just make the punishment overwhelmingly heavy. …‘If I’m caught, my life is over; it's not worth the risk.’ If they think that, rational merchants won't bother trying to evade taxes at such a high cost.”
Gustav gasped.
Don’t seek perfection; regulate the whole through a few "severe punishments." Maximize deterrence while cutting management labor to the bone. It was the ultimate optimization of distrust.
“Furthermore, let's link ‘practical benefits’ to the Management Plates. For individuals and shops alike. …When someone pays their taxes, sync a ‘Tax-Paid Flag’ from the office’s duplicate plate. If this flag isn't lit, they can't use the New City’s ‘Running Water.’ They’ll lose access to certain public facilities, too. Let's turn tax into a ‘License Fee’ for the city’s system, rather than just stolen money.”
“A License Fee…?”
“Right. That way, for the residents, this plate changes from a ‘tool of surveillance’ to a ‘passport to a wealthy life.’ …What do you think?”
Gustav crossed his arms and fell into a deep, deep silence.
Eventually, he nodded with a look of total conviction.
“…Scrapping the existing heavy taxes for a self-reporting system with severe penalties and linked services. Understood. I shall proclaim this new tax system immediately.”
“Hehe, leave it to me! I’ll immediately integrate a formula to display a little ‘Tax-Paid Mark’ in the corner of the plate!”
Elishua no longer looked like a girl obsessed with selfies; she had the face of an engineer responsible for a nation’s core infrastructure.
I sank into the sofa and took a satisfied sip of my cola.
Outside the window, the New City, glowing in the setting sun, was finally about to set its "bloodline of knowledge" in motion.