Monday, April 22, 2013

The Boundaries of Tax Justice

I posted a draft of this paper on SSRN some time ago but neglected to post it here, so here it is. I argue that because governments chase wage-earners and consumers doggedly while selectively overlooking or ignoring other taxpayers, the imposition of income taxation as it is practised by states today is fundamentally unjust. Abstract:
The story of our time may be the awakening of society to an epidemic of global tax dodging by the world’s elites. Citizens, watchdog groups, and even government officials are puzzled, frustrated, and sometimes outraged by the phenomenon, wondering where the nation-state lost its way in regulating its people and its resources, and why it is standing by, apparently helplessly, as its tax base erodes while austerity measures undermine the welfare state. This paper demonstrates that the sequence of tax base erosion-austerity-welfare state erosion is a story about a crisis of tax justice. It does so by revisiting how Canada's historic Royal Commission on Taxation, in its search for guiding principles for tax reform, turned to tax justice as the central component for any tax system. It shows why nations have consistently failed to meet these guiding principles, instead taxing the easy-to-tax more or less comprehensively, the hard-to-tax more or less randomly, and the impossible-to-tax not at all. It demonstrates that the result is that no state today imposes taxation justly: instead, taxation as exercised around the world today is overwhelmingly characterized by arbitrariness and injustice. The paper concludes that if governments cannot or will not pursue justice in taxation, they have at minimum a duty to explain to society why this goal is no longer worthy of pursuit.
This paper includes a discussion of who should be considered a "taxpayer" by a state. I argue that citizenship-based taxation is unjust from both a human and statist perspective, and I therefore make the case for residence-based taxation. As always, comments are welcome.


  1. About the individual's "choice" to be a citizen and to owe allegiance to a state. You're absolutely right that this rapidly becomes incoherent in a world where multiple citizenship are becoming more and more common. I would add that unless one is naturalized we all have acquired our citizenships in ways that are purely accidental: our parents and place of birth. Renouncing that is not so simple. Even the states that have relatively simple procedures for giving it up can and do insist that the person has another citizenship so that they don't become stateless. This makes the case for using citizenship even more suspect. Citizenship systems are designed to be an automatic "opt-in" whereas in a democratic nation-state it might make more sense (though I recognize that it poses an administrative burden) to have a more explicit "opt in".

    I really enjoyed the section on how states define "taxpayer." I had not realized that that there were quite so many criteria though I was aware that there is conflict (something I am sadly in a position to know).

    Going back to James C. Scott it's a problem of "legibility." For citizens abroad to be taxed they must first be revealed and some method used to keep track of them. One of the more diabolical, but very smart, features of FATCA is that the US government is delegating the responsibility to the private sector and to other governments. And as you point out, it's not just about pure information but also about context. How can a state judge the economic power of a citizen living in another country? What appears to be a modest but adequate salary in Port Angeles, WA, USA would not permit one to live decently in London, England. As practiced by the US, there really isn't any mechanism for determining the ability to pay based on the conditions in the country where the US citizen is actually living. I think it's perfect possible to do but imagine how onerous a burden that would be.

    Last point which also was inspired by Scott. For 150+ years the US has had citizenship-based taxation but it was only very recently that any serious attempt was made to enforce it. There was a "zone of disobedience" where the US effectively ceded that area and relied on voluntary compliance and didn't seem too disturbed that most didn't comply either through ignorance or passive resistance. The U.S. is now trying to take that territory back. Their decision to not only start applying the law but to heavily penalize those who operated under that tacit understanding is a serious act of aggression by the state against its citizens abroad. That kind of retroactive unilateral abrogation of that implicit agreement is fundamentally unjust. If they had said instead that the deal was off and had organized an information campaign which clearly stated their intentions and assured people that application of the law was on a "going forward" basis, they might have had more success with it. The sentiments that are bubbling up today around all this is deep disillusionment, fear and a sense that "it's just not right." This has motivated people to come forward and work against it - something that is highly unusual for the American diaspora which is normally a very quiet beast. What is building is a collective consensus among Americans abroad that what is being asked of them is unfair and unreasonable. This is poisoning the relationship between the homeland and her citizens abroad to an extent that I have never seen in nearly 20 years abroad. This will, I believe, make is much harder, much more expensive, to get people to voluntarily comply. Colbert's goose is hissing.

  2. The energy companies are transferring their profits to tax havens & offsetting their costs against UK tax.(Transfer Pricing)
    As far as I can make out this is general practice in the Corporate world. (its legal)
    We also have the problem that the UK government would rather spend 100Bn on Trident than build nuclear power stations.
    So these will be put on our energy bills.
    It would be a good approach initially to get the UK government to protect UK households from fraud by ring fencing UK Utility companies.
    If we dont do this a lot of pensioners will have their homes/assets seized to pay for these fraudulently escalating bills.

    Tax has a set of principles which we are trying to get adopted.
    We need shareholders, friendly banks, honest people & some pension funds to adopt these principles.
    Will you help?