On efficiently taxing foreign residents

The main idea: taxing the self-declared value of a set number of tradable residency permits is the most efficient way to implement income taxes on foreign residents.   

0. Posts on this blog are ranked in decreasing order of likeability to myself. This entry was originally posted on 06.04.2022, and the current version may have been updated several times from its original form. 

1.1 I am a VAT kind of guy, and would ideally like to see all taxes scrapped in favour of a combination of a no-exeptions VAT and a property (not just land) tax. Importantly, this would mean no income tax.

1.2 But income taxes would still be called for, albeit only to be applied on foreign residents. How to make such taxes as efficient as possible? 

1.3 Why, the way you establish any market-efficient interface, set the quantity and let the market set the price (yep, rationing works, price controls do not).

1.4 A set number of transferable residency permits are issued (ideally only once), and individuals who wish to work in the country must purchase one. Firms wishing to bring people in may also buy into the market, but the idea is to issue a relatively limited number of such permits in order to incentivise only those best placed to contribute to actually come over. I could see a Japanese firm insisting on bringing the whole C-suite of a newly setup firm from overseas, but not a thousand programmers.

1.5 Anyway, the permits work by self-valuation. Holders publicise the value their permit has to them, and anyone who pays this value to the current holder becomes the new holder. Can't say no, can't hoard a permit. 

1.6 You obviously pay tax on this self-declared value and there you go: a market-efficient tax on foreign residents.

1.7 The only conscious decisions the Finance Ministry must make are the quantity of permits to issue and the tax rate to enforce, all other elements are set by the market. Frequency of payment must also be set with some consideration given to ability to plan: if you ask for weekly payment you implicitly say that a guy can be booted out of the country any given week. I reckon quarterly payments would be best. 

1.8 Also, in practice you wouldn't ask people to nominate a price, just give them the bank account where to pay the tax, and you automatically calculate the value by capitalising the tax rate. A nice simple app or site would be in order.

1.9 Here you get a simple indicator of you economic well-being: average price of a permit.

1.10 Could you do the same for income taxes at large? Nah, if a foreign resident looses his permit you can boot him out (which backstops the whole system), but what should you do to a citizen who looses his tax permit? Income tax at large just has to go.