Is it valid to pass a law that cannot be upheld?
(Question applies to any jurisdiction)
Tax must be paid with legal tender. There is only so much money in the world that can actually be used to pay taxes, and I would imagine this is significantly less than the dollar-worth of all assets. Theoretically, the sum of tax billed to all citizens/entities could be greater than the amount of legal tender in circulation to pay this tax.
I'm not sure what the total amount of legal tender usable for paying taxes is. Let's say hypothetically this is $100 trillion. Imagine some asset such as bitcoin currently has a market cap of $1 trillion.
If people distrusted the government so much to the point where they refuse to ever sell their bitcoin, the USD/BTC pair could go close to zero, where BTC/USD tends toward infinity. In this crazy scenario bitcoin could hit a market cap of $1000 trillion.
Of course this means nothing in the sense that these are unrealized gains. (No one actually plans on realizing them because of distrust in the government). Now imagine the minting of new bitcoin from mining is 33% annually.
Assuming the market cap of bitcoin remains constant, this would amount to $250 trillion dollars of unrealized income after one year. Imagine this income was taxable at a 50% rate.
Now all bitcoin investors would owe $125 trillion to the government at a single instant (assuming citizens are only due tax all at once at the end of the financial year).
This is greater than the $100 trillion of actual money in existence that can be used to pay taxes.
What happens here? One of the following? Something else?
- Such laws which cannot be upheld are allowed and all you can do is try to get these laws changed before you get into problems
- Individual citizens get into problems for not paying taxes since their individual amount owed is technically possible (even though the sum across all citizens is technically impossible to pay)
- The government is forced to reduce the income tax rate from 50% to something lower so that all these taxes can be payed
- In this specific scenario, these taxes are not required to be payed
- The tax laws are suddenly considered void and no one has to pay income tax anymore until these laws are fixed
- This is a flaw in the tax system and even though this hypothetical scenario did not yet occur, the laws could still be challenged right now as we speak in a court, and no one has to pay taxes until fixed
Obviously that was a very specific example above (that's very hypothetical and probably contains many mistakes). A more general answer would be good to know.