1) Are implying that all citizens would be required to track their entry and exit points into bitcoin in dollar terms and pay capital gains on the difference? This is a worthwhile debate and I look forward to seeing guidance issued by various tax authorities on issues like these. Here's my take:
2) Bitcoin makes VAT easier to collect but capital gains tax much harder to collect. If you attempt to collect tax on bitcoin gains, then you must also allow taxpayers to write-off bitcoin capital losses. This system would be very easy to cheat in favour of the tax payer and very hard to police by the tax authority. People hoping to minimize their capital gains on bitcoin could easily obfuscate their trail (in fact it would be hard not to): how is anyone going to know what exactly Sam bought with her bitcoins, or the exact price she bought them off of Joe?
1) Yes. The need to pay capital gains tax is one of the main reasons we don't have competition in the media of exchange market. If there would be competition, people would already be using digital gold or silver. However, the need to pay capital gains tax on every transaction makes the legal use of such media incredibly complicated and expensive. Some countries do not allow losses to be written off. This, however, is not the main point: Even if you are allowed to write of losses the sheer amount of paperwork needed to document every bitcoin increase and decrease effectively kills off any competition to the dollar. The dollar is the only media of exchange which is not taxed (at least in the US, same for other countries, its always the government currency).
Real world example: If an individual buys something for his bitcoin he will have to pay capital gains tax. For example, one stewardess was an early adopter of bitcoin and bought a ticket to space from Richard Bransons Virgin Galactic. Now the government could find out her identity (via virgin galactic) and ask her if she paid capital gains on her bitcoin stake she used to pay Virgin Galactic. Same goes for Virgin Galactic.
Now you could make an example of her (show trial) in order to scare off individuals who might have used bitcoin and evaded taxes. You can also make an example of businesses who are easy to track.
However, this is only part of the argument I made in the OP. Other ways (new laws not yet on the book) of killing off the media of exchange competition (like bitcoin, gold, silver etc.), is to
prohibit their use or acceptance by merchants (GoldMoney, Liberty Dollar for example; the
creator of Liberty Dollar (Nothaus) was labelled a domestic terrorist, real world example of a public show trial btw.). Thus, bitcoin will not function as a media of exchange.
2) You have to remember being a successful business and
having lots of customers is a public act. Every company files tax returns and balance sheet statements. Now if you show lots of revenue you have to show lots of transactions to justify this revenue and pay capital gains taxes if these transactions are in bitcoin. The government can simply look at your bank account to see if you have corresponding transactions in its government currency. If your bank account does not show transactions because you used your bitcoin account they know whats up. So, again they will want to see a huge amount of paperwork regarding capital gains and bitcoin that must in their view go along with your revenue.
Again, its not about the tax you pay, but about making it annoying for merchants to transact in bitcoin. If current capital gains law is not annoying enough they will find other methods like out right prohibiting bitcoin use (labelling anyone who does transact in bitcoin a terrorist, see Liberty Dollar) or use "soft force" via paperwork regulation to make bitcoin uncompetitive (like capital gains tax law).
>> You are going down the deep end. Government wants you to use and hold onto their currency so that they can inflate and steal purchasing power. Collecting taxes is not going to solve that problem.
Do you imagine "them" as this cohesive group of people plotting to make your life miserable? The government (aka "they") are just a bunch of unique individuals trying to make a nice life for themselves and those close to them. I agree that the system in place steals purchasing power through inflation--most people do. But to imply that everyone in government drools over the thought of stealing your purchasing power is juvenile. Everyone knows there is corruption in places, but still most people in government are just like you or I. They dislike crazy banking fees and they worry about reckless government spending affect their purchasing power in retirement.
Bitcoin forces governments to be accountable. This is better for everyone.
I think you are totally off base. Politicians care about power and maintaining their power. Control over money and inflation is one of politicians most powerful instruments to finance their operation. Is it bad for the economy? Yes. However, price increases can be blamed on evil business men who are greedy. Printed money can be used to pay off debt, to finance close buddies who will give you special privileges, dolling out money to important voter segments needed for reelection without raising taxes and so forth. So, your statement that they like low transaction fees more than this enormous power is false. Read history and you will know. Protecting oneself against inflation is easy, its only the people saving in dollars that are affected (thats why they want you to hold dollars so they can steal your wealth if need be). Politicians know how to buy land, stocks and other hards assets to protect their savings.
Again, thinking Bitcoin will replace the dollar monopoly is naive. Now if it does replace the dollar monopoly, we still have to ask the question if it will be the dominant media of exchange and store of value, after all there are alternatives.
Now my thesis again is that it will be prohibited to use bitcoin as a media of exchange just like they closed down Liberty Dollar or Gold Money and in China this other alternative currency (forgot its name). China made a move on bitcoin already.
Bitcoin will be outcompeted by Gold regarding the store of value aspect.