Agreed. I want to be clear that I do think that encryption has an important role in organization and social change. I'm just struck by claims from some of the self-identified cypher-punks that encryption could mean taxation would be impossible or the idea of escaping into this "Other Plane" as a way to secure freedom.

Agreed. I'm not even sure if it's all that interesting that encryption plays a role: I think privacy, and by extension secrecy plays a role. And in our world, cryptography is increasingly a precursor to both privacy and secrecy.

But I think the fight about making cryptography available, really is the fight for right to privacy, and even right to secrecy in certain areas of our society. The USA is fortunate in some ways because of the constitution, and its repercussions throughout modern history - even if law enforcement can build or buy a device to see through walls, that doesn't allow such tools to be used without regulation.

But now is the time to regulate large scale meta-data, traffic analysis, in addition to guaranteeing a right to technology that allows data to be kept secret.

Why couldn't it make taxation impossible?

Sure, you still need to buy things in person, which can be done with cash. But drug dealers seem to be able to do a pretty good job of evading taxes.

Imagine if everything that you bought in person was done with cash, or a bitcoin payment. That money would be untaxable.

If you buy a house, for sure, the government can track that, and you need to make sure the money used to buy that is "clean", but a surprising large percentage of a person expenses could be done in a safe way.

It's not sufficient to just lean heavily on cash. You also need to have a legitimate-looking explanation for where the cash came from if the tax authorities check up on you. Even if you can work anonymously and get paid via anonymously mailed envelopes of cash or Bitcoin, good luck living a normal middle class lifestyle while avoiding income taxes.

Buying a house or renting housing leaves a paper trail. So does renting or buying a car from most places that sell or rent cars. So does paying utility bills. So does paying for prescription drugs, medical services, car insurance, life insurance... So does paying for higher education.

I guess if you had some cash-only tax evading side business you could use cash to buy things like food, clothing, gasoline, and miscellaneous household goods. But you're not going to be able to dodge the taxes on middle class life's major expenses -- at least not without tripping the same mechanisms that catch drug dealers buying cars etc. with cash. I suppose you could live like an off-the-grid survivalist who never interacts with ordinary businesses. That looks like a lot more work than living an ordinary life where you work at jobs that don't involve trusting other criminals, buy things and pay taxes like usual.

Cash-only for everything is just about feasible, if you accept the extra costs of theft prevention. But bitcoin? Bitcoin is ridiculously traceable. Every transaction is public. Make one opsec mistake and everything is exposed.

You're also assuming that the government would sit still in the face of a serious erosion of the tax base, and not crack down on it. The US is bad enough with its arbitary seizures of cash, let's not destabilise the situation further.

With Bitcoin there is no central agency that can simply confiscate money with a call. The government would have to torture you for the private key. But there is not even a way to see, let alone prove, how much money you own, as long as you made it anonymously.