I wrote the following in a late night word explosion when I had less than 24 hours left in my Kickstarter campaign to fund the External Revenue Service’s Weird Economics Summit and a seemingly impossible amount to raise to get to my goal. I had received feedback from multiple people who still didn’t quite understand how the External Revenue Service will work, so I decided to write an explainer. Here goes…
Purpose
The External Revenue Service is a peer-to-peer tax system designed to make it easier for people to share their disposable income with the people, organizations, and causes they care about most.
Terminology
Traditionally the type of giving facilitated by the External Revenue Service is called a donation. In some circles it is called a charitable gift. In others, a tithe or an offering. In reality a donation is simply a tax.
A donation is a tax that people levy on themselves in order to fund the things that they believe add value to the world but that are not being funded sufficiently by the government or the general public. The External Revenue Service facilitates and automates the exchange between these taxpayers and the people to whom they have elected to pay tax. This is why it is called a peer-to-peer tax system.
In the External Revenue Service there are two types of people. Those who elect to be givers — the taxpayers — and those who elect to be receivers — the tax collectors.
Receivers, it turns out, are also givers, but we’ll get to that later.
Givers pledge a percentage of their annual income to their portfolio of receivers, and each month funds are drawn from their account and disbursed to the receivers based on how the giver has allocated their pledge.
Concepts
Give first
The External Revenue Service is focused primarily on the giver and the act of giving. Let’s imagine that sometime in the near future there lives an active giver named Grace. She is a successful software engineer at a boutique web development firm in Manhattan. She has an annual income of $150,000 and is passionate about the arts, science, and education. In addition, she has a daughter in kindergarten and sits on the board of her biologist friend Frederick’s nonprofit, which hosts after school science clubs in underserved New York City schools. As an External Revenue Service member she has pledged to give 2% of her annual income ($3000) to the following portfolio of receivers.
Walt is the most recent addition. He is a well-regarded poet and friend of Grace’s from college whose $30,000 annual income from an adjunct teaching position at a local university barely covers his living expenses in New York. Recently, Walt received an email from the External Revenue Service stating that Grace had made a pledge to pay him a tax of $25 per month. He is skeptical that this was some kind of scam and wonders if Grace’s email has been hijacked (an unlikely scenario considering Grace’s technical chops), but after seeing that Grace’s portfolio also included his old pals Carl and Alice from school, he happily clicks to accept the pledge and start the ID verification process to connect his bank account for direct deposit.
At this point, Walt encounters a strange message.
Everyone’s a philanthropist
The message Walt receives reads:
The External Revenue Service is a give-first “askless” model of philanthropy. In order for the pledges you have accepted to be fully active and disbursed to your bank account each month, you must first make a pledge of your annual income and allocate it to at least one receiver. You can pledge any percentage that you would like, so long as it is something.
Walt is very broke and was really looking forward to having the extra $300/year from Grace to support his writing, but he figures he can spare $100 of it and pass the generosity along to others since Grace was so generous to him. He doesn’t know what percentage of his $30000 income equals $100 so he just enters his income in the Annual Income field and $100 in the Annual Amount field and the Annual Percentage is automatically calculated: 0.3333%.
Portfolio building
Walt is now faced with building his portfolio and allocating his pledge. He notices that there is already one pledge in his portfolio: 5% to the External Revenue Service. He finds this odd so he clicks on it. The pledge expands to display a message:
The External Revenue Service is supported by pledges from the people who use it. You are free to set your pledge to be any amount you would like, even 0%. The choice is yours.
Walt likes this idea, but he wants to give more of his annual pledge to others, so he adjusts it down to 3%.
He imports his contacts from Gmail and discovers that 15 of his friends are already on the platform, including Alice and Carl from Grace’s portfolio. He decides to pledge 20% each to Alice and Carl but he’s unsure what to do with the other 57%. He tries to give 10% to Grace as a thank you, but he receives a message saying that Grace has elected to participate in give-only mode and that he can’t give to someone who is pledging to him, so he decides to support Grace’s science nonprofit at 20% and the New York Public Library at 10%. He would really like to give the remaining 27% to his upstairs neighbor Maya who runs a Queens-focused poetry journal but it looks like she is not an External Membership Service member, so he enters her email alongside his pledge amount and submits his pledge portfolio.
In a few minutes, Maya receives an email stating that Walt has made a pledge to pay her a tax of $2.25 per month. She is skeptical that this was some kind of scam and wonders if Walt had had his email hijacked, but…
And so it goes.
Network effects
Time goes by. For each of the next two months, Grace’s bank account is automatically debited for her $250 of monthly pledges, while Walt’s bank account receives $16.67 (his incoming pledge from Grace minus his outgoing pledges of $8.33). The following month Walt receives another pledge of $15/month from his lawyer friend Lawrence after he describes the mysterious experience of receiving his first pledge from Grace. Two weeks later, he receives a pledge of $10 from someone named Cory who he doesn’t know at all, but who includes a note reading “I’m a huge fan” with his pledge. He replies to the pledge with a thank you and learns that Cory learned about his work when Lawrence lent him a copy of his latest publication while he and Cory were at a conference together. He noticed Walt in Lawrence’s portfolio and decided to add him.
The next month Walt receives a combined $50 from Grace, Lawrence and Cory and pays $8.50 in pledges to the recipients in his portfolio. His net income is now $30498 per year. In the meantime, Cory has also started giving to Maya’s poetry journal and Grace’s science nonprofit, which he learned about by seeing who was in Walt’s giving portfolio. He also gives a small amount to one of the poets in Maya’s portfolio.
Moving money
Transaction fees are a killer of charitable giving, so the External Revenue Service uses bank-to-bank ACH transfers to keep transaction fees at $0.25 or lower. This also encourages givers to budget for giving based on their actual cash flow and discourages the use of credit cards, which carry both high transaction fees and the potential for debt.
To reduce transaction fees even further, funds are aggregated from all givers and disbursed to each receiver in a single bank transfer each month. Similarly, a single bank debit is used to bill each giver for all of their monthly pledges. This facilitates the creation of larger portfolios and allows for better handling of small denomination giving.
Monthly billing allows both givers and receivers to spread their cash flow out across a whole year, which helps receivers avoid the feast-or-famine dynamics of traditional campaign-based fundraising and allows givers to avoid having to write large checks at the end of the tax year when they might not have the money left over.
Transparency control
The External Revenue Service believes in both privacy and transparency and allows givers to have complete control over what information is revealed to the general public or to the receivers in their portfolio. By default all users operate in Basic Mode, which reveals only the contents of a giver’s portfolio but hides their annual giving percentage. Open Mode reveals their annual giving percentage while Stealth Mode hides both their giving percentage and the contents of a their giving portfolio. The allocation percentages of a giver’s portfolio are never revealed, and dollar amounts of monthly pledges are only ever revealed to the receivers themselves.
Asklessness
Traditional fundraising and most crowdfunding requires the people raising money to expend significant amounts of time, energy, and money preparing, marketing, and managing their campaigns. These resources are better spent doing the things that make a person or organization great in the first place, and the External Revenue Service system is designed to reduce and eventually eliminate the act of asking. Receivers are able to engage with their givers one-on-one, but there are no mass communication tools. In addition, receivers are not able to contact anyone who does currently include them in their portfolio.
To labor and not to seek reward
There are no rewards on the External Revenue Service platform, because giving should not be transactional. A future iteration of the External Revenue Service may provide a general commons into which receivers can push items for anyone to claim, but rewards will never be granted in exchange for giving.
If you would like to help make the External Revenue Service a reality, please feel free to contact me at max@externalrevenue.us.
