Monday at McGill: Diane Ring on Sovereign Harmony, Domestic Discord

The 4th Annual Tax Policy Colloquium at McGill Law concludes Monday with a presentation by Professor Diane Ring of Boston College on her paper, Sovereign Harmony, Domestic Discord: Democracy and the Gap Between International Tax Cooperation and Domestic Politics (draft not yet available). Professor Ring explores how to understand the interplay between domestic tax politics and the need for nations to speak with one voice on the international stage. She argues that the more fractured internal politics, the less hope there seems to be for the kind of international cooperation that would make the tax system more coherent both nationally and internationally. Here is the Abstract:

The challenges of the international tax system have become ubiquitous. Newspapers recount the tax exploits of multinational corporations that are household names and announce the jail sentences of the latest Swiss bankers and U.S. taxpayers to fall in the ongoing attack on tax evasion. The twin pressures on effective income taxation captured by these stories are those of tax evasion (typically engaged in by individual taxpayers) and tax avoidance (typically characterized by the planning and structuring undertaken by multinational corporations). In both cases cooperation between and among states plays a pivotal policy and enforcement role. That is not to say that cooperation (in its various iterations) is a universal or achieved objective. Rather, the question of whether states can identify a shared goal and move cooperatively toward that goal is an important focus of international tax policy discussions. With respect to the problem of tax evasion there have been some notable steps of cooperation through information sharing measures (including Tax Information Exchange Agreements) as well as domestic changes designed to increase transparency. Less agreement and coordination has been evident for the problem of tax avoidance. The current context in which these questions are being explored communally is the Organization for Economic Cooperation and Development (OECD) project on “Base Erosion and Profit Shifting” (the “BEPS” project). 

But regardless of the degree of current cooperation, agreement, and coordination achieved on these international tax issues, the focus on the status of state-to-state relations can obscure another critical factor in the international tax system: domestic politics. Even if and when states reach a shared understanding of a dimension of the evasion or avoidance problems, a resulting agreement by states is not the end game. Although states must act and negotiate as monoliths in their state-to-state interactions, there remains the ever-present constraint of democracy at home and the possibility that a deal struck on the global stage is undone in the domestic sphere. This dynamic between international relations and domestic “politics” is neither new nor limited to taxation. But the serious attention to and heightened expectations from cooperation among nations regarding major issues of international tax policy requires that comparable attention be directed at the domestic side of cooperation. 

The task of this paper is to explore how domestic politics can impact the heart of the international tax system – agreements among states on important issues of tax policy design and practice. Through a better understanding of the intersection of domestic politics with international debates and agreements, we can consider how and under what circumstances states might diminish the likelihood that domestic discord will ultimately undermine sovereign harmony (i.e. international agreement). Part I outlines three recent examples of international agreement or cooperation that risked rejection or at least significant undermining on the domestic front. Part II reviews the literature regarding international cooperation to develop a framework for approaching the case studies on domestic politics in international tax. Part III draws upon the theoretical work reviewed in Part II to develop a framework for understanding the intersection of international tax and domestic politics. In light of the increasing role that global cooperation and coordination plays in the development of successful international tax policy and practice, the Conclusion considers further research that could illuminate the domestic side of international agreements.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice. Professor Ring's talk will commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.

Date and Time: Monday, 25 November, 14:30–16:30.

From John Prebble : Teaching Tax in a Sculpture Park

John Prebble (customarily at Victoria University of Wellington, New Zealand) sends over this post from Austria, where he is currently teaching a course on “Jurisprudential Perspectives of Taxation Law” in WU (Vienna University)’s doctoral programme in international business taxation. As you can see from his remarks below, this would be a very fun place to do a doctorate.

John Prebble

In September 2013, the Institute for Austrian and International Tax Law, together with all the rest of Wirtschaftsuniversität Wien, moved to an entirely new campus, on land on the edge of the Prater, Vienna’s equivalent of Hyde Park in London or Central Park in New York, between the Danube and the Danube Canal. The campus design and the buildings were the product of international competitions.

For gastprofessors like myself, it’s like teaching in a sculpture park: I was the first occupant of the study that projects from the fourth floor of the orange and yellow Law School, designed by Sir Peter Cook, architect of the London Olympic Stadium. The exterior timbers are purely a “poetic fancy”; from the inside your eye scarcely registers them as you focus on the view beyond:

Next is the teaching building, by Carme Pinós, of Barcelona, where I had first use of one of the new lecture theatres. The rusty look of the cladding is indeed rust, but a special sort of rust that protects its steel, so there is no need for paint:

Finally, below are the exterior and interior of the library, by Zaha Hadid, from her Hamburg office. The elevated wedge is the main reading room. Readers’ desks are in tiers and point roughly south-west, giving everyone marvellous views across the woodlands of the Prater. The atrium is an excellent example of the famous sinuous lines of Ms Hadid’s work.

Must read: @Salon on Lobbyists Posing as Think Tanks

This is a must read. My first reaction was: this is not new, this is old hat. But the intentional misleading might be categorized as new. I have been doing some work on the problem of uneven political influence and how that fits in with the narrative of tax compliance (i.e., when the lobbyists write the rules, is it any wonder that GE, Apple, Google, Starbucks, etc, can say with pride that they dutifully comply with all applicable laws), and I have suggested that what is needed is more policy input from those who do not themselves stand to benefit directly from promoting a particular policy direction, namely, academics who research subjects for the purpose of increasing human knowledge. This means that in my view academics--which includes anyone who calls herself a researcher in any capacity--should always provide detailed disclosure of funding whenever publishing anything, so that the public can distinguish between advertising/advocacy and information.*

This is getting increasingly tough in our uber-consumer oriented society but we must stay vigilant about this, hence the dire need for organizations around the world doing things like the Center for Media and Democracy did here. In this story Salon hits the target directly on why disclosing pecuniary interests is critical to ensuring that public discourse does not fall to the fate of political representation in a nominally democratic but factually plutocratic society, namely, pay to play.

The concluding sentence says it all:

Certainly corporations have a right to have their voice heard, but that voice should be their own, not that of a phony expert on retainer.

* Note that this doesn't in any way mean that getting funding for engaging in research is inherently bad. It means that it is relevant to the conversation because some people find it politically expedient to provide funding in order to obtain specific findings and disseminate those findings as credible on the facts, and as an academic you ought not to want to be associated with that sort of propaganda, so you want to disclose your sources of support. In my view the research question should attract the funding and not the other way around. 

I'm talking FATCA: Listen tomorrow morning on CBC's the Current

Tomorrow I'll be talking about how the US crackdown on offshore tax cheats via FATCA impacts ordinary Canadians with US ties by virtue of citizenship based taxation, on Anna Marie Tremonti's the current (CBC radio). I'll do my best to explain the intent versus the reality of FATCA within the time allotted.

Update: here is the story from CBC with a link to the broadcast. Lots of things I wish I would have had time for, but hopefully this at least sparks a national conversation about this important topic.

Tomorrow at McGill: Tillotson on the historical use of morality in tax policy

The 4th Annual Tax Policy Colloquium at McGill Law continues Monday with a presentation by Professor Shirley Tillotson of Dalhousie University on her paper, The moral worlds of fair taxation: a perspective from 20th century Canadian history (draft not yet available). Professor Tillotson examines the use of political rhetoric to advance tax reform. Marco Garofalo posted some thoughts on the topic earlier today.

The McGill Tax Policy Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice.

Professor Tillotson's talk is scheduled to commence at 2:30 pm tomorrow; members of the public are warmly welcomed.

 Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
 Date and Time: Monday, 11 November, 14:30–16:30.

Rhetoric as Intellectual Anaesthetic in Tax Politics: Guest post by Marco Garofalo

Advocates of tax policy reform use common rhetorical themes to link their preferred policies to desired descriptors. The most common of these are fairness, efficiency, simplification, and competitiveness. Most of the time these terms are used without definition or explanation and they are used indiscriminately to support policy proposals across the political spectrum. This can have a tremendously destructive impact on public discourse over time, as people use these words to mean virtually anything, and then begin to believe these words have no meaning at all.

In his 1946 essay, Politics and the English language, on using "language as an instrument for expressing and not for concealing or preventing thought," George Orwell warned that using rhetoric in this sloppy manner ultimately destroys our ability to engage in critical thinking:

[A]n effect can become a cause, reinforcing the original cause and producing the same effect in an intensified form, and so on indefinitely. A man may take to drink because he feels himself to be a failure, and then fail all the more completely because he drinks. It is rather the same thing that is happening to the English language. It becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.

 Orwell argued that political actors use language to deceive their audiences. He writes:

The words democracy, socialism, freedom, patriotic, realistic, justice have each of them several different meanings which cannot be reconciled with one another. In the case of a word like democracy, not only is there no agreed definition, but the attempt to make one is resisted from all sides. It is almost universally felt that when we call a country democratic we are praising it: consequently the defenders of every kind of regime claim that it is a democracy, and fear that they might have to stop using that word if it were tied down to any one meaning. 

Political actors can easily exploit the different meanings of words by using them in vague and imprecise ways. The audience then assumes the word to mean what they think the word means, rather than whatever meaning might have been intended by the speaker. The popular use of the term "a fair tax regime" serves as a ready example. Each person projects their own, everyday understanding of fair onto this word, giving the phrase any number of meanings, probably few of which would survive scrutiny under close examination. Consequently, a political actor announcing a new tax policy can deceive her audience by calling it “a step towards a fair tax regime” without in any way attempting to define what such a regime might require to fulfill principles of fairness.

In a paper presented last month at McGill, Professor Lynne Latulippe presented the use and misuse of the term "competitiveness" in contemporary tax policy. This term, usually bundled with efficiency, frames contemporary tax policy discussions and often hides the fact that generous benefits are intended to be granted to certain political constituents thereunder.

On Monday, Professor Shirley Tillotson from Dalhousie University will add to this discussion by presenting her text, “The moral worlds of fair taxation: a perspective from 20th century Canadian history” at the McGill Tax Policy Colloquium. In an echo of Orwell's warnings, Professor Tillotson presents a striking example of the use and misuse of rhetoric in furthering political goals by examining the use of "patriotism" in the development of Canadian taxation. Patriotism served as a ‘moral exhortation’ in the interwar period, as Professor Tilloston puts it, to do one’s part for the national purse.

Professor Tillotson employs as a telling example a noted failure of the federal tax authority to enforce compliance with the tax law on judges in Quebec, on the grounds that exposing judges as tax dodgers would undermine “absolute confidence” in the system just as the government badly needed cash to address the fiscal crisis of the 1930s. The rhetoric ran thus: if people do not have confidence that the judiciary is acting patriotically, then why would they aspire to patriotism? By sweeping non-compliance under the rug and linking taxation with war, the authorities were able to convince people in the 1920s through to the 1940s that paying taxes is patriotic.

These days, we tend not to use the term patriotism to convince the public to comply with tax law. Instead, Professor Tillotson argues, discourse in the late 1950s and early 1960s revolved around different questions: which features are of the tax system are fair, economic, or moral? Deductible mortgage interest payments, child care expense deductions, expense account deductions are examples of policies that were in play. All of these succeeded or failed because they were fair or unfair; economic or uneconomic; or moral or immoral.

Free-riders in action.

The idea of the free-rider is the common denominator in tax reform politics, throughout the time period examined by Professor Tillotson and extending to contemporary tax discourse. Free-riders always have been, and always will be, the object of fiery hate. Words like patriotism and fairness may have elastic definitions, but free-rider is clear: someone who does not pay their fair share. And for some reason, people get really get riled up over other people not paying their fair share.

But a definition of free-rider depends on one’s definition of fairness. Multinationals like GE, Starbucks, Google, or Apple were easily painted as free-riders after media reports that they apparently pay very little taxes anywhere. Many people think that the fair share for these multinationals should be higher. Yet each company points to the other ways in which each contributes to social goals, and each lobbies vigorously for ever more tax reductions by arguing that these reductions would help them contribute even more to society or by falling back on a rhetoric of competitiveness.

Consequently, we will continue to "lob moral molotovs" at each other until we come to some definition of fairness. Maybe, as Orwell suggests, we do not want to find a definition for fairness, because then we will be tied to that definition. Self-interested parties want to continue hijacking this word, and others like it, to their own advantage. A consensus on fairness would put an end to that.

Reading Orwell alerts us to how important it is to pay close attention to the words used in tax policy discourse, and parse through any tax talk that is mired in political spin.  Orwell warned that the "invasion of one's mind by ready-made phrases … can only be prevented if one is constantly on guard against them, and every such phrase anaesthetizes a portion of one's brain.” As Professor Tillotson puts it: “[w]e should be able to do better”.

Corporate Tax Breaks to Which No One in Gov Pays Any Attention

It is quite extraordinary how much taxpayer money can be spent through expenditures that face no systemic evaluation on the merits. The GAO released a report dated September entitled Corporate Tax Expenditures: Evaluations of Tax Deferrals and Graduated Tax Rates. The main findings are not exactly news: deferral reduces tax on U.S. multinationals by delaying tax until repatriation, and we don't really know whether graduated corporate tax rates are accomplishing whatever purpose we think they serve. For both cases, maybe the most alarming point is the last one on each topic: no agency has evaluating these expenditures as a mandate. Here are the summarized findings:

On deferral:
1. some experts say deferral promotes competitiveness of U.S. multinationals, but others say this ignores the effect on other corporations that can't use deferral, as well as broader economic impact.
2. deferral could distort corporate investment and location decisions and we don't necessarily know who benefits; meanwhile, deferral adds complexity to the tax code.
3. no other federal spending programs appear to subsidize U.S. MNCs in the same way
4. estimates suggest deferral doesn't cost much budget-wise
5. no federal agency has been tasked with evaluating deferral.

 On graduated corporate rates:
1. graduated rates are supposed to support small business, but we don't know if they do.
2. graduated rates present little complexity, but they probably induce planning and their impacts on decision-making aren't well understood.
3. graduated rates may be related to (a.k.a. duplicative of) other federal spending programs targeted to small businesses.
4. estimates suggest graduated rates don't cost much budget-wise
5. no federal agency has been tasked with evaluating the graduated rates.

More at the link, but not dramatically so.