Many years ago, I learned that the Faroe Islands has a peculiar process for compensating workers. There, employers pay each worker’s entire paycheck to the tax authority, which removes any taxes owed and then remits the remainder to each worker’s linked bank account. As part of this process, the tax authority also rolls in any welfare payments an individual is owed when making its periodic payments.

I found this system fascinating for many reasons:

1. It has clear benefits for employers as they no longer have to manage tax withholdings or hire a third-party firm to do it for them.

2. It has clear benefits for individuals as they never overpay or underpay their taxes and therefore don’t have to deal with any end-of-year tax reconciliation.

3. It has clear benefits for managing the economy because it generates nearly real-time, whole-economy data about employment, wages, and incomes.

4. It has clear benefits for welfare administration, as it automatically collects the information that goes into the calculation of certain benefits like unemployment insurance. It also makes it trivial for the welfare state to reach every person in the country, such as in the event of an acute recession where stimulus may be necessary.