Sunday, April 28, 2013

Why It Would Be Great if Congress Was Forced to Buy Their Own Health Insurance at Full Cost

From FDL, highlights:
Making Congress and their staffers pay the full cost of their insurance is fine with me because that is how the law will treat millions of middle class families. All members of Congress and most staffers will have salaries high enough they would not qualify for subsidies on the exchanges. If Congress is going to make regular people with similar salaries buy insurance out-of-pocket than that should be good enough for Congressional aides.
I also have no problem with the law forcing Congressional staffers to lose their relatively good insurance because that is a long term goal of the law for everyone. The excise tax on “Cadillac coverage” was designed to stop employers from providing good insurance, covering a large share of your premium, and/or getting them to drop offering coverage altogether.  What might happen to Congress is very similar to what Congress intended to happen to others. 
Finally, if Congress is worried their staffers can’t afford to buy insurance out-of-pocket they can just use the money Congress would have spent on their premium and raise their salaries by the corresponding amount. The financing of the law was based on the theory that a dollar in benefits is exactly the same as a dollar in salary. The theory, put forward by Obama’s economists, advisers and the Joint Tax Committee is that if you force companies to offer their employees worse insurance, they will increase their wages by an equal amount. This sounds like a perfect opportunity to put the theory to the test.
Have laws apply to lawmakers the same as it applies to the governed, have the law play out as it was designed, and put the underlying economic theory to the test: these seem like common sense ways to make sure that our democratic decision-making structure is working. Unfortunately we have ample evidence that this structure is working better for lawmakers (and lobbyists) all the time, and correspondingly worse for everyone else.  Congress exempting itself from things that won't personally benefit its members is not a new story, and in light of the brazen roll-back of the "Stop Trading on Congressional Knowledge Act" in order to make it easier for members to quietly line their pockets via insider trading, there is ample reason for pessimism.

Still, WAPO has a story about how Congress isn't really trying to exempt itself, just trying to fix some inadvertent writing in the code that caused some unintended consequence that only a few people understand enough to get upset about. A book could be written on that recurring theme.

Thursday, April 25, 2013

What tax lawyers mean when they opine on the likelihood of success on the merits

I posted this on Twitter yesterday but for those not of the twitterverse, you may enjoy this guide to tax opinion standards, posted recently at Canadian Tax Litigation blog:

Percentage chance of success...Standard of Opinion 100% Will
99% Will, at the Ivory Soap level
98% Will, almost certainly
97% Will, almost all the time
96% I would be astounded if we lost
95% I would be very surprised if we lost
94% We will not lose this one
93% It had better be right
92% I would tell my mother-in-law to do this
91% I would tell my mother to do this
90% I would tell your mother to do this
89% Like crossing the street
88% It's in the bag
87% They don't get much better
86% You don't need an opinion
85% Why are you asking the question?
84% It’s almost in the bag
83% One could imagine a "will"
82% Stronger than a strong should
80% Strong should
79% Essentially, a strong should
78% Better view is a strong should
77% Not without hesitation, a strong should
76% Better than a good should
75% Good should
74% Odds are high
73% Remarkably likely
72% Very likely
71% Better than a weak should
70% Weak should
69% We expect to win
68% In all probability
67% In all likelihood
66% Looking good
65% Should probably
64% Most likely
63% Likely
62% Favourable prospect
61% Not without hesitation, should
60% Not a bad prospect
59% Reasonable prospect
58% Fair prospect
57% Well-grounded hope
56% There is reason to expect
55% Better view
54% Ought to be right
53% Not without hesitation, the better view
52% More likely than more likely than not
51% More likely than not
50% Your guess is as good as mine
49% Less likely than not
48% Less likely than less likely than not
47% Almost there
46% I hesitate to predict
45% Depends on the day of the week
44% If we get the right judge
43% A very good shot
42% A good shot Percentage chance of success Standard of Opinion
41% It arguably could work
40% It arguably might work
39% G-d willing
38% Depending on the facts
37% There are good arguments
36% Could be in the cards
35% Stranger things have happened
34% Throw of the dice
33% As taxpayer's counsel, I would not be ashamed to argue this in court
32% Not without considerable doubt
31% With some good fortune
30% Might
29% Might be argued that
28% Stands a chance
27% Might stand a chance
26% It could be that it might work
25% I might be that it could work
24% Not very likely
23% Conceivably
22% Conceivably, but not hopeful
21% I've seen worse
20% Perhaps arguable
19% Within the bounds of possibility
18% Maybe
17% Maybe, but not likely
16% Not likely enough
15% Possible, but not likely
14% Maybe Enron would do this
13% As a DOJ lawyer, I would not be ashamed to argue this in court
12% It should work, but it won't
11% It could work, but it won't
10% It might work, but it won't
9% Tell them you didn't know
8% Perhaps if nobody finds it
7% You have got to be joking
6% Anything can happen, but this won't
5% You must not understand the legislation
4% Canadian jails aren't bad
3% I wouldn't wish it on my enemies
2% Not bloody likely
1% Not in a month of Sundays
0% Not 

Monday, April 22, 2013

Corporate tax transparency: Australia's work in progress

Australia is working on transparency and information sharing, and is seeking feedback by April 24 (this Wednesday):
On 4 February 2013, the Assistant Treasurer announced the Government’s intention to improve the transparency of Australia’s business tax system and that the Government would consider the views of the community in assessing what changes are appropriate. 
The Government seeks your feedback and comments on the issues outlined in this discussion paper. As this paper provides details about how these proposals could be legislated, you may wish to comment on law design as well as policy design issues in your submission. It would assist the consultation process if those stakeholders who have any concerns with the proposals could provide practical examples in their submissions demonstrating the implications of these proposals and how any alternative approaches could operate.
Highlights from the discussion paper:
On 4 February 2013, the Assistant Treasurer announced the Government’s intention to improve the transparency of Australia’s business tax system with a view to introducing necessary legislation later this year. ... 
This paper outlines three proposals that could give effect to this announcement. ...These proposals could complement existing corporate disclosure requirements and enhance the administration and regulation of Australia’s tax system and capital markets. ...
• Transparency of tax payable by large and multinational businesses. 
– The objective of this proposal is to enable the public to better understand the corporate tax system and engage in tax policy debates, as well as to discourage aggressive tax minimisation practices by large corporate entities. 
• Publishing aggregate collections for each Commonwealth tax. 
– The objective of this proposal is to enable better public disclosure of aggregate tax revenue collections, even when the identity of particular entities could potentially be deduced. 
• Enhanced information sharing between Government agencies. 
– The objective of this proposal is to build on existing information sharing arrangements and enable greater information sharing between the Australian Taxation Office (ATO) and the Department of the Treasury with respect to foreign acquisition and investment decisions affecting Australia.
Australia's Treasury seeks to consider views from "the community"--not defined so no reason that can't mean the global community.  Address written submissions to: 

General Manager
Tax System Division
The Treasury
Langton Crescent

Thanks to Miranda Stewart for passing this along.

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.

Sunday, April 21, 2013

Are multinational companies a public good? If not, why are taxpayers subsidizing their global marketing strategies?

The story is that the Canadian government recently set up food trucks in Mexico in order to promote "Canadian cuisine," which the National Post pictures as follows:

Above: poutine. Below: tourtière, both from Quebec.
(the article says only QC has any sort of cultural food identity. Sorry BC!)
These national icons are being served from this truck:

Don't judge this book by its cover.
So, the Canadian government has gone to Mexico with a van decorated with fresh sell gravy-and-cheese-slathered french fries and meat pie.

To be sure I'm not against either of these foods in principle (so long as the latter is served with maple syrup) and I'm not against Canadians...whether individual or corporate..setting up shop in Mexico to sell the hapless public yet more creative combinations of salt-sugar-fat. (Neither would I be opposed to Mexico imposing Pigouvian taxes on this activity, to compensate for the costly externalities visited upon the public health.)

But I very much object to taxpayers subsidizing the venture. I get that all countries try to promote their culture and in the process increase exports of their goods & services (or is it really the other way around). But as industrial policy goes, this has to be the bottom of the barrel.  If McCain Foods Inc cannot get the word out about its wonderful french fries, I simply cannot see how it becomes the  public's responsibility to provide it with free advertising. 

Last week we learned that corporate tax expenditures more or less equal corporate tax revenues raised in the US.  I haven't seen similar number crunching for Canada (working on it), but I expect for multinationals at least the story is very similar. If you then add these straight up subsidies, are we getting to a place where multinationals constitute a net drag on the fisc? If yes then we should be asking ourselves: when did we decide that multinational corporations are a public good that must be financially supported by other taxpayers? 

Is there anyone out there still clinging to the sense that a free market economy must mean something other than government subsidies for favored industries?

Add to summer reading list: Multinationals and Human Rights

John Ruggie has published Just Business: Multinational Corporations and Human Rights.  Abstract:

One of the most vexing human rights issues of our time has been how to protect the rights of individuals and communities worldwide in an age of globalization and multinational business. Indeed, from Indonesian sweatshops to oil-based violence in Nigeria, the challenges of regulating harmful corporate practices in some of the world's most difficult regions long seemed insurmountable. Human rights groups and businesses were locked in a stalemate, unable to find common ground. In 2005, the United Nations appointed John Gerard Ruggie to the modest task of clarifying the main issues. Six years later, he had accomplished much more than that. Ruggie had developed his now-famous "Guiding Principles on Business and Human Rights," which provided a road map for ensuring responsible global corporate practices. The principles were unanimously endorsed by the UN and embraced and implemented by other international bodies, businesses, governments, workers' organizations, and human rights groups, keying a revolution in corporate social responsibility. 
Just Business tells the powerful story of how these landmark "Ruggie Rules" came to exist. Ruggie demonstrates how, to solve a seemingly unsolvable problem, he had to abandon many widespread and long-held understandings about the relationships between businesses, governments, rights, and law, and develop fresh ways of viewing the issues. He also takes us through the journey of assembling the right type of team, of witnessing the severity of the problem firsthand, and of pressing through the many obstacles such a daunting endeavor faced.
Excellent timing, with all the world watching whether and how governments are going to increase transparency with respect to MNCs and their local and global dealings.

Saturday, April 20, 2013

Thoughts on the "you first, no you first" provision in Norway's FATCA agreement with the US Treasury

Norway signed an IGA with the US Treasury on April 15.  I blacklined the Norway agreement against the Model 1 FATCA, (you can download the comparison here) and note that some of the regular features appear, including deemed-compliance status for pension funds and "local" banks* but want to address in this post what I'll call the "you first, no you first" provision in Article 4, paragraph 6.

Some FATCA watchers were surprised to see this paragraph, and I admit I had not noticed it before so I assumed it was new--until I blacklined it and found that no, that paragraph is in the Model 1 Agreement (however it is not in the IGAs with Mexico or the UK), and the Model language is identical to that in the Norway agreement.

In any event, having now read this Art. 4 paragraph 6 more closely, I notice there is actually a good bit of maneuvering going on here. Here is the language:

6. Coordination of Timing. 
Notwithstanding paragraphs 3 and 5 of Article 3:
a) Norway shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the calendar year with respect to which similar information is required to be reported to the IRS by participating FFIs pursuant to relevant U.S. Treasury regulations;
b) Norway shall not be obligated to begin exchanging information prior to the date by which participating FFIs are required to report similar information to the IRS under relevant U.S. Treasury regulations;
c) the United States shall not be obligated to obtain and exchange information with respect to a calendar year that is prior to the first calendar year with respect to which Norway is required to obtain and exchange information; and
d) the United States shall not be obligated to begin exchanging information prior to the date by which Norway is required to begin exchanging information.

This is actually not at all easy to read (on purpose? One always wonders).  But for sure this does not say, as some readers initially thought, that Norway can wait to give info to the IRS until the IRS begins to give info to Norway. In fact, it rather says quite the opposite. Nor, as I thought when I first read it, does it say that Norway need not exchange until Treasury begins to require equivalent information be reported on Norwegian account holders by US FIs to the IRS.

Instead, it says very simply that Norway need not exchange information with the IRS before the US Treasury regulations require FFIs to begin reporting to the IRS, and the IRS will not exchange info with Norway before Norway starts exchanging. All this use of negatives is confusing so let me try to put it in positive terms: it in effect says that Norway will start giving the IRS info once the IRS requires FFIs to begin reporting per the Treasury regs. Notice that Treasury makes no affirmative commitment on the part of the IRS to actually exchange thereafter--only that in any case it will not exchange before Norway does. It implies that it will be obligated to automatic exchange thereafter, but I am not sure even that is so clear.

The Mexico IGA--the only agreement that is technically in force right now--should provide ample proof that the Treasury has not committed to actual automatic exchange of information with its IGA partners (regardless of para. 6), and certainly that the Treasury is not going to go first. On the contrary, Treasury has only said that it will begin requiring US banks to provide the IRS with information on IGA-country account holders, which could be exchanged with such IGA partners if Treasury determines that such sharing would be appropriate. According to the Treasury, "Even when [an info exchange] agreement exists, the IRS is not compelled to exchange information… if there is concern regarding the use of the information or other factors exist that would make exchange inappropriate.”

No word on what those other factors might be, so read this as a broad grant of discretion to the Treasury, with no accountability required toward the IGA partner.

Mexico, it appears so far, has not yet been given the green light, so I can only assume that the status quo right now is Mexico dutifully turning over (on a monthly basis I believe) IGA-compliant information, while the IRS provides Mexico nothing in return. You might like to see what the American Banking Association thinks about this status quo. I think it is safe to say that the Florida and Texas Bankers Associations are determined to at minimum delay reciprocal automatic information exchange as long as possible, if they cannot eliminate it all together.

Now, if I have these facts incorrect and the IRS is actually exchanging information with Mexico under the IGA, I hope that someone will please correct me right away because this is tremendously important--as I have suggested before, the information Mexico could get from the IRS under such an arrangement could be explosive in terms of exposing the volume and direction of tax evasion as between these two countries (not that the public will get much or any information on these things--on the contrary we most likely will learn absolutely nothing, more's the pity).

One might say the USA won't similarly refuse to share information with Norway as such behavior smacks as bad faith, and countries have a positive duty to on the contrary act in good faith with respect to "international agreements". Moreover, it strains credulity to think that Treasury would start collecting information on Norwegian account holders from US banks, without actually planning to share it.

To that I would counter, presumably Norway knows exactly what it got in this deal: the same promises as have come before.

This is consistent with the rest of the IGA, which suffers from the same lack of reciprocity that in my view belies the character of these instruments as international agreements at all, even beyond their likely constitutional violation in the USA.  I recently wrote an article about the lack of reciprocity in the IGAs, why I think that is so problematic in terms of creating a perverse market advantage for the USA to facilitate tax evasion, and why there is not much reason for being optimistic that the necessary sea change will occur to make FATCA a viable multilateral regime with equal applicability to the world's largest destination for foreign capital. You can read that article here, and as alway I welcome feedback, especially to correct any of my misunderstandings.

To sum up, in my view the "you first, no you first" provision adds nothing in terms of greater reciprocity in the Norway IGA, while the same procedural and substantive defects we have already seen continue unabated.

* I also note a new conditionality to the local bank exception, in Annex I Part II.A.(e):
"provided thatNorway provides information on an automatic basis to the relevant Member State;"
This seems to mean that until Norway is actually exchanging info, its local banks will not be deemed compliant but will be withheld upon once the "you first" rule kicks in (i.e., once FFIs must begin reporting per Treasury regs).  

The local bank exception is a get-out-of-FATCA-free card for banks whose account holders--including US citizens--mostly live in the country. I've been told the provision is meant to help Americans living abroad whose local banks are dropping them in the (mistaken) hopes that this will relieve the FI of FATCA scrutiny. I have a lot of trouble with this local bank exception in terms of what the US appears to be trying to do with it, tempering citizenship-based taxation with an escape hatch that potentially encourages and even invited casual noncompliance, but that's a conversation for another day.

My intrigue with the new language in the Annex here is that I'm not sure why this condition applies only to local banks, and not other deemed compliant FIs. Those who think the FATCA regime is now deliberately aimed not at catching HNW Americans living in the USA and stashing cash offshore (few of whom hold large amounts of cash in accounts with their own names attached, as Lee Sheppard has repeatedly pointed out) but instead at imposing upon US citizens living abroad with their middle class wage earnings and their lack of effective representation in Washington, could have a field day with this provision. 

Saturday, April 13, 2013

Canadian Tax Foundation conference: "Abusive Tax Planning"--May 1 in Montreal

The Canadian Tax Foundation will hold a lunchtime conference on May 1st in Montreal on The Fight Against Abusive Tax Planning at the Federal Level and the New Quebec Rules with respect to Non-Resident Trusts, with updates by the CRA and Revenu Québec. The event will be held from 12 to 2pm at the Center Sheraton, Salons 4 & 5, 1201 René-Levesque Blvd. West, Montréal. From an email alert: 
Mr. Dan Rivet, (Manager / GAAR and Inter-provincial Tax Avoidance Section at the CRA) will discuss the various types of abusive tax planning schemes that are currently being audited by the CRA and the success that the CRA has had in its fight against abusive tax planning both at the domestic and the international levels. 
Mrs. Agathe Simard (Director General – Direction principale de la lutte contre les PFA at Revenu Québec) will be discussing the new Québec measures that require the filing of tax returns by all non-resident trusts who hold immovable property in Québec.
En français, I expect--you can check out the program at the link above and register online.

Senate quietly easing restrictions on their own insider trading, to protect "national security"

I wish I could express surprise. I can, however, muster some dismay:
The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency. 
The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates. 
The House was expected to pass a similar bill on Friday.
MR posts links to the FT article, other sources, and says "Some officials suggested that transparency "could threaten national security," more detail on that here.  Here are some further interesting details."

Clearly, what we least need right now from our elected leaders is an assurance that we will know less and less about their business and financial dealings while they ostensibly serve in the public interest. For shame.

Friday, April 12, 2013

Canada Revenue seeks source data on tax evasion from the ICIJ to bring "appropriate action"; What role due process?

Tax authorities are embarrassed by the ICIJ leak and they want the source data before anything more embarrassing hits the front page news and/or to show they really are serious about cracking down on offshore tax evasion.  As a result I am not surprised to see the Canada Revenue Agency attempt to prise the data from the CBC:
...It is my understanding that a leak of large amounts of data potentially exposing cases of offshore aggressive tax avoidance and possibly tax evasion is the catalyst for these stories. I also understand that your organization may be in possession of some or all of this data. 
You will know that the Canada Revenue Agency has already been in touch with your organization to underscore the importance of this information to our continuing efforts on behalf of Canadians to combat offshore aggressive tax avoidance and evasion. 
I would expect that both the CBC and you, as its president and CEO, have an interest in ensuring that appropriate action is taken if individuals are not respecting their tax obligations. Taking action against individuals who are not respecting their tax obligations is in the best interest of the public and law abiding Canadians. The provision of the data that your organization has in its possession would allow the CRA to pursue cases where this is occurring without in any way infringing on your journalistic mandate. 
I again respectfully request that you provide to the Canada Revenue Agency all of the data the CBC received through its collaboration with the International Consortium of Investigative Journalists so that the Agency may review and take action according to its mandate. I understand that the CBC is reluctant to provide this data, citing concerns with journalistic independence and protecting sources. I can assure you that the Canada Revenue Agency has not asked for the source of the information and will treat any information you provide with strict confidentiality in the same manner it treats all taxpayer information it receives. 
I sincerely hope that you will respond positively to this request and agree to provide this information so that the CRA can carry out its responsibilities.
Lots of loaded language there but it's clear the CRA can't compel the CBC to hand over the data, and is appealing to the CBC's sense of responsibility to society to make sure that tax cheats are brought to justice.  Notice the CRA doesn't confine itself to the data that implicates Canadian taxpayers--they want "all the data." I wonder why they don't offer the temptation of the newly-authorized whistleblower rewards. But is it not the case that the CBC, and the ICIJ, have obtained this information illegally? And if so, what are the ramifications for bringing criminal action in Canada?

The ICIJ received a hard drive in the mail containing millions of lines of personal financial data on individuals and companies that presumably were entitled to confidentiality under existing national laws--laws presumably similar to those that currently protect Canadians' financial data from being given out to unrelated third parties. Recall the CRA's “Declaration of Taxpayer Rights," which states that every Canadian:
“can expect [the CRA] to protect and manage the confidentiality of your personal and financial information ... Only employees who need your information to administer programs and legislation have access to your information. We also take other steps to protect your information and make sure it is kept confidential. For example, we follow government-wide and internal policies on the security of information and privacy.”  
The Declaration is simply an agency statement and lacks the force of law, but many of the rights it details, including the right to privacy and confidentiality, are “legislated” rights, that is, they are contained in the Charter, the Act, other statutes, or the common law.  Legislated rights do have the force of law so Canadians have mechanisms to seek redress in cases of breach of confidentiality or privacy by the CRA. Presumably, other countries have similar confidentiality rules and taxpayers have rights in those countries, too. Have these not been (and are they not being) violated by the sender of the hard drive, the ICIJ, the CBC, and the other journalists?  Of course, the CRA would be entitled to data on Canadian taxpayers from the taxpayers themselves and from relevant third parties under domestic law, but this is the major sticking point of the international tax system today: barring automatic information exchange from other governments, it is hard for the CRA to find money hidden offshore without resorting to extra-legal means of obtaining information.

So if we think the people exposed in the ICIJ leak have violated Canadian law, we must also recall that they have due process rights under that law. Would prosecution of Canadians using such illegally-obtained information pass internal due process requirements? I think the answer is probably yes, and I wonder if Canada might diverge from the US in the ability to use ill-gotten evidence in a criminal prosecution.

The reason I think that Canada could use the data as evidence in a criminal prosecution is that even though every Canadian "has the right to be secure against unreasonable search or seizure," and even though this Charter protection has been interpreted to require law enforcement authorities to seek prior judicial authorization for a proposed search and seizure if the target has a reasonable expectation of privacy with respect to the information sought, the case of Schreiber v. Canada says that the rights and freedoms enumerated in the Charter are guaranteed only against interference from actions taken by the federal or provincial governments of Canada.  Following the Schreiber decision, it seems that even tax information obtained illegally would be admissible against Canadians, so long as it wasn't the Canadian government that was responsible for the illegal action that exposed the behavior.  

In the United States, the result might be different. The cases of United States v. Wolf (1984) and U.S. v. Phillips (1979) suggest that information requested from another government by the IRS would be inadmissible as evidence against a U.S. citizen if it was seized by the foreign government in contravention of U.S. law (even if the seizure was allowed under foreign law).  Turning that around, I am not sure what happens if the IRS tries to use information that a private citizen produces in contravention of foreign law, but perhaps the cases suggest that if the information is produced in a manner that also violates US law, it could not be used as evidence in a criminal prosecution. If anyone reading this could shed more light on the subject, I'd be grateful for the insight.

Relatedly, I've been wondering what happens to the ICIJ, the CBC, etc. themselves, if they expose names and financial information about anyone that turns out not to be engaged in anything illegal? Maybe this seems improbable but it bears recalling that it is not illegal to own an account in another jurisdiction, including in the Cook Islands. What is illegal is failing to fulfill disclosure obligations under the laws of any jurisdiction that claims sovereign rights over you. That kind of information is perhaps not on the hard drive, so mistakes could be made in exposing people to public scrutiny who are not engaged in anything illegal. Thus the CRA makes the leap from data on a hard drive to evidence that Canadians are shirking their tax obligations, but it's certainly possible that not all the data points in that direction. That may be why the ICIJ has not made the source data public as Assange did--perhaps there is some sense that disclosure of all the data on the drive might not necessarily be "in the best interest of the public and law abiding" population, of Canada or otherwise.

In any event this story continues to unfold and as usual raises more questions than I can readily answer. I will be very interested to see how things proceed in terms of the CBC or the ICIJ releasing the source data to any tax authorities.

Bridge Over the River Detroit

Surprise--despite determined efforts to stop the process, the US has pushed through approval for the new Detroit-Windsor Bridge.  As you may know the new bridge is opposed by Matty Maroun, who controls much of the current cross-border traffic between these two cities via his ownership of the Ambassador Bridge. From the WSJ blog:
The Detroit-Windsor bridge would be the third international connections between the two cities, joining the 84-year-old Ambassador Bridge and the 83-year-old Detroit-Windsor Tunnel. Those two links are the busiest, and second-busiest, border crossings in North America, respectively, funneling tourists and trade between the two countries.
Canada agreed last year to provide as much as $550 million to build the new six-lane bridge, which would relieve congestion at the border. Under the deal, the private sector will cover the rest of the costs, sparing the already stretched Michigan taxpayers from having to pony up. 
The cross-border financing deal was a big issue and Maroun wanted to take the question to voters via a referendum with the help of some sympathetic funders, but apparently, he failed. Of course, there is the matter of staffing all the booths--that's going to be tough on the US side given sequester-driven cuts.

FATCA reciprocity in Obama 2014 Budget?

One line in the budget itself:

Provide for reciprocal reporting of
information in connection with the
implementation of FATCA ................... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .
The blanks indicate that the measure is deemed to have no impact, positive or negative, on the deficit.

This explanation in the Analytical Perspectives:

Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA).—In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to Restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts. Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS.  Requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents.  The proposal would provide the Secretary of the Treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities. 

But nothing further from the Treasury in its own explanation of the budget.

So we will just have to wait and see, some more. Note that even this brief move forward highlights the aspiration involved in referring to any currently configured IGA as "reciprocal."

Upcoming conference on tax & philanthropy

Over at Philanthropy blog Lucy Bernholz alerts us to an upcoming conference in DC  (to be webcast) on "The Charitable Deduction in American Political Thought," in which participants will discuss the charitable deduction's "deepest dimensions as an expression of fundamental American political principles." And there is required reading:

Neither of which I've read so I had better get going. 

Monday, April 8, 2013

France ups the ante for EU tax evasion

Cahuzac's denials and ultimate admission about hiding money offshore while serving as the anti-evasion officer-in-chief is very embarrassing for France, and so it should be no surprise to see the rhetoric heat up as new allegations surface about his attempts to move the money around in an ultimately futile attempt at subterfuge. From AFP:
J'ai dit quoi?

France said Sunday [ed: France is a country and cannot speak. It is not so difficult to write "French leaders said", and it is ever so much less distracting.]  it was looking to tighten Europe-wide measures against tax evasion as it scrambles to contain a fraud scandal that has rocked President Francois Hollande's government.
...Finance Minister Pierre Moscovici announced that France would seek to reinforce the exchange of banking information throughout Europe, based on a US ruling in place since 2010 that seeks to fight offshore tax evasion.
Well, the "rule" may have been in place but let us recall that it is not in fact yet in force...three years later, we're still working out the kinks over here, and there are many, many kinks.

"I propose that there be an automatic exchange of information, a European FATCA," Moscovici said on Europe 1 radio.
Hollande's government has been shaken by the scandal, which erupted Tuesday after Cahuzac -- once in charge of tackling tax evasion -- admitted to investigators that he had a foreign account containing some 600,000 euros ($770,000). 
...Critics have been quick to round on Hollande and his ministers, accusing them of either trying to cover up the scandal or of mismanagement for having believed Cahuzac's denials.

...Hollande has tried to contain the fall-out from the scandal, saying he was unaware of the account and announcing Wednesday that a new law would be submitted within weeks that will establish greater control over ministers' wealth. 
The law would also ban any elected representative found guilty of tax fraud or corruption from holding any form of public office.
Query whether there would be enough people left to run the world if every country made this same pledge.

Kahng & Fellows: Undertaxed Business Owners and Overtaxed Workers

Lily Kahng & Mary Louise Fellows recently published Costly Mistakes: Undertaxed Business Owners and Overtaxed Workers, in which they take issue with traditional attempts to distinguish between outlays that constitute "investment", which may be used to reduce income (sooner or later) and those that constitute "consumption", which never get to be used to reduce income. Every tax professor must address this line-drawing issue in the first tax course and in my experience students are often frustrated by  number of clearly arbitrary designations. Typical example: why is it that a consultant's outlay for box seats to woo clients is an "investment" but my law school tuition is "consumption"?  Lily & Mary Louise's answer: because the powers that be have in general determined that businesses only make outlays for the pursuit of profit, while employees are equated with consumers, so their outlays must typically be considered personal. I am glad to see Lily & Mary Louise take on this line-drawing challenge, and I think they do a good job showing the normative failures that have been allowed to direct tax policy in this regard.

From the abstract:
This Article advocates fundamental changes in the federal income tax base by systematically challenging conventional understandings of consumption and investment. As signaled by its title, “Costly Mistakes,” this Article’s thesis has to do with the disparate treatment of expenditures incurred by business owners and workers. Where the current tax law treats a business owner’s expenditure as investment, the Article sometimes finds consumption and questions why the law should allow the expenditure to be deducted. Where the tax law treats a worker’s expenditure as consumption, the Article sometimes finds investment and questions why the law does not allow at least a partial deduction. 
...[T]he Article demonstrates that the deference the tax law traditionally has accorded business owners results in their undertaxation. Through an analysis of the tax law’s treatment of workers, it further shows how its structural and substantive rules treat workers primarily as consumers, rather than as producers, and why that results in their overtaxation. 
The Article then investigates the economic inefficiencies produced by the tax law’s generous treatment of business owners’ outlays and its unduly restrictive treatment of workers’ outlays. It goes on to suggest how to scrutinize and reform the tax treatment of workers and how to extend that approach to business owners with far-reaching implications. Finally, the Article relates the undertaxation of business owners and the overtaxation of workers to the broader social policy discussions concerning the high rate of unemployment in the private sector and the escalating deficits in the public sector. 
It concludes that the success of the U.S. economy in the twenty-first century requires the tax law to treat both business owners and workers as producers. It further concludes that the tax law’s continuing failure to acknowledge that business owners and workers are both consumers and producers undermines the goals of efficiency and fairness.
In addition to making the normative case against preserving the status quo on both efficiency and ability to pay grounds, the article walks through the major issue areas covered in an intro tax course, so this looks like a good candidate to add to any intro tax canon. 

Tuesday, April 2, 2013

To understand why citizenship-based taxation is objectionable, consider the STEM Jobs Act of 2012

Victoria Ferauge explains in as clear a way as may be possible why it is important to understand what people mean when they talk about citizenship-based taxation, and why the US effort to impose it with the big stick of FATCA is so objectionable to Americans living in other countries (also known as "immigrants" in those countries). She makes a number of points but I wanted to highlight one here:
In the [dialectic on Americans living abroad, which equates expatriation with tax evasion] it seems not to have occurred to the American public or its lawmakers that the people they are trying to attract [through immigration policies aimed at high-skilled workers] are the product of other countries' investments in producing a well-educated populace
In light of that, consider what the Heritage Foundation says about the STEM Jobs Act of 2012:
American businesses are struggling to fill high-skilled employment opportunities. STEM jobs grew at over three times the pace of non-STEM jobs between 2000 and 2010 and are expected to grow almost twice as fast by 2018. Business groups have spent years urging Congress to reform the visa system in order to fill these empty positions.
Enhancing the ability of high-skilled workers to enter the U.S. would be an asset to the nation’s economy as well as its indebted government. 
In case the instrumentalist nature of our interest in immigrants is not clear, the point is we're going to make these foreign-born, foreign-raised, foreign-educated, now high-skilled, highly-paid workers a permanent part of the American taxpaying public, which can increasingly be defined as the American wage-earning public. One may be forgiven, perhaps, for juxtaposing this deep thirst for foreign talent against America's ongoing disinvestment in its own social infrastructure, including public education (also helped along by the Heritage Foundation).

Victoria's post thus seems to me to contain the contours for constructing the normative case for taxing humans. There is much to be done on this topic, but it seems clear that the practice of admitting immigrants at all, let alone actively seeking highly-skilled ones, demonstrates that inbound human mobility is a social good that states support; that inbound human mobility (perhaps especially of the high-skilled kind) may be the product of rather intense social investment by some other country; and that conversely taxing on the basis of citizenship regardless of residence is a means of preventing outbound human mobility and so runs strictly counter to the overall good of human mobility while also being hostile to the aims of other countries also seeking inbound labour.

The US has long objected to onerous fiscal controls on the capital it sends across borders, so it seems particularly difficult to understand the ongoing support for placing onerous fiscal controls on its outbound labour supply. Contextualize that observation within the story of the shift of taxation from capital to labour over the past 50 years, however, and a pragmatic explanation is easily ascertained. But pragmatism does not make the normative case. In fact, it violates the conventionally-understood major normative factors for assessing taxation--efficiency, administrability, and fairness--because it introduces an insurmountable amount of arbitrariness. This topic deserves much more thinking than has been allocated to it by tax policy observers, including myself.

There is much more at the link, please do go and read Victoria's whole post.