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An Alert from the Left: The Endangered Connection Between Taxes and Solidarity at the Local and Global Levels

  • Saffie G. Francisco

Abstract

Neoliberal tax policies at the local and the global levels risk democracy consolidating economic inequality by allowing and fostering capital accumulation. As a consequence capital owners have increased their political power to influence and decide on local and global tax policies for their own benefit. The Chilean income tax system and the international tax law system (including tax competition among states and tax heavens) are analysed as examples of neoliberal tax policies at the local and the global level, respectively. At the same time, neoliberalism as a normative order of reason has replaced the political aspect of taxation with economic concepts that tend to dissolve the connection between taxes and solidarity. In this scenario, taxes make no economic or political sense as they are not understood as duties of citizenship. In this Article, recent alternatives proposed to diminish global no taxation and inequality, as the OECD BEPS project and Thomas Piketty's proposal for a global tax on capital are analyzed and criticized.

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References

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1 On the concept of neoliberalism, see Biebricher, Thomas, Neoliberalism and Law: The Case of the constitutional Balanced-Budget Amendment, in this issue.

2 David Harvey, A Brief History of Neoliberalism Introduction (2005); Wendy Brown, Undoing the Demos. Neoliberalism's Stealth Revolution 20–21 (2015); Raymond Plant, The Neoliberal State Ch. 9 (2009). On the general characteristics of neoliberal political economy see Jessop, Bob, The Future of the Capitalist State 95–139 (2002). Leo Panitch, perhaps with extreme optimism considered that the initial regulation of markets after the 2008 subprime crisis meant the end of neoliberalism understood as the opposition between states and markets. See his “Introduction” to Ralph Miliband, The State in Capitalist Society (2009).

3 Wolfgang Streeck, Buying Time. The Delayed Crisis of Democratic Capitalism 626 (2014).

4 Id. at 47–96.

5 Id. at 97–164.

6 Id. at 5.

7 For an argument showing how neoliberal policy brings economic growth, see Paus, A., Economic Growth Through Neoliberal Restructuring? Insights from the Chilean Experience, 28 J. of Devel. Areas 3156 (1994).

8 Colin Crouch, Making Capitalism Fit for Society 23 (2013).

9 Id. at 24.

10 Id.

11 David Harvey, Spaces of Global Capitalism 29 (2006) [hereinafter Harvey, Global Capitalism]. See also Harvey, David, A Brief History of Neoliberalism (2005).

12 See Harvey, Global Capitalism, supra note 11, at 43.

13 See also Crouch, Colin, Post-Democracy 3169 (2004) [hereinafter Crouch, Post-Democracy]; Colin Crouch, The Strange Non-Death of Neoliberalism (2011).

14 See Crouch, Post-Democracy, supra note 13, at 31.

15 Id. at 32.

16 Many countries finance their public expenditure with a combination of tax revenue and public debt. This is not the case of a consistent neoliberal country as Chile, where public debt has been strictly controlled through a structural balance rule. According to this rule public expenditure cannot exceed tax revenue. This rule, nevertheless, has not been constitutionally adopted.

17 For an exposition of the neoliberal argument, as an economic argument, according to which taxes “become inconsequential,” see Kleinbard, Edward D., We Are Better Than This. How Government Should Spend Our Money 3741 (2014).

18 See Brown, supra note 2, at 9–10, ch. 1.

19 Id. at 31.

20 Id. at 33.

21 Id. at 35.

22 Id.

23 Wolfgang Streeck, Citizens as Consumers, 76 New Left Rev. 27, 41 (2012).

24 Id. at 42.

25 Id.

26 See Saffie, Francisco, Taxes as Practices of Mutual Recognition: Towards a General Theory of Tax Law Ch.3 (July 2, 2014) (unpublished Ph.D. thesis, Edinburgh University) (on file with author).

27 See generally Harberger, Arnold C., The Incidence of the Corporation Income Tax, 70 J. of Polit. Econ. 3 (1962); Kyle Pomerleau, Eliminating Double Taxation Through Corporate Integration, Tax Found. (Feb. 23, 2015).

28 See generally Goldberg, Daniel S., The Death of the Income Tax (2013).

29 This is not strange as progressive income taxes were only established around the beginning of the twentieth century. See Piketty, Thomas, Capital in the Twenty-first Century 498508 (2014).

30 Quoted in Michael Stolleis & Thomas Dunlap, A History of Public law in Germany 1914–1945 224 (2004).

31 Id. at 219.

32 Judith Freedman, Taxation as Legal Research, in Taxation an Interdisciplinary Approach 15 (Margaret Lamb, Andrew Lymer, Judith Freedman & Simon James eds., 2004).

33 According to Hensel, the legal duty to pay taxes is “born with the realization of the taxable event.” Albert Hensel, Derecho Tributario 154 (2005).

34 For further details of this argument, see Saffie, Francisco, Taxes as Practices of Mutual Recognition: Towards a General Theory of Tax Law Ch.2 (July 2, 2014) (unpublished Ph.D. thesis, Edinburgh University) (on file with author). For another way of putting this point but from a different conception of tax law, Kleinbard argues that the structure of the legal duty to pay taxes raises avoidance as a moral and not a legal problem, even if he recognizes that “for every real-life action in the commercial sphere, one finds a tax description and a tax operator, that together yield a tax consequence.” Edward Kleinbard, Stateless Income and Its Remedies, in Global Tax Fairness 132 (Thomas Pogge & Krishen Mehta eds., 2016). For Kleinbard, therefore, there is no underlying substance to the artificiality upon which the legislature structures tax obligations.

35 For details of this process see generally Juan Gabriel Valdés, Pinochet's Economists. The Chicago School in Chile (1995).

36 This is not the place to analyze why it failed, though there are good reasons to believe that the U.S. and Chilean capitalists had responsibility in the failure of the economic system by generating the economic crisis. What happened in Chile is a dramatic case that illustrates Streeck's point about the way in which capital can control democracy.

37 Harberger's work, supra note 27, was particularly influential on this issue.

38 In the words of IMF No. 14/219, “Chile's full integration system is probably one of the purest in design.” International Monetary Fund, Chile: Selected Issues Paper, IMF Report No. 14/219 (July 2014).

39 Id.

40 In Chile there is no corporate tax. As I explain in the main text, the income tax is fully integrated so that tax paid by firms is nothing but an advance of the shareholders or partners' income tax.

41 Generally, it is understood that a tax is regressive when those who have less income end up paying proportionally more taxes than those who have more income. For an argument according to which saying of a particular tax that it is progressive or regressive is myopic for not considering public expenditure, see generally Liam Murphy & Thomas Nagel, The Myth of Ownership. Taxes and Justice (2004).

42 Fairfield, Tasha A. & Michael Jorrat, Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile, 62 Rev. of Income and Wealth 1 (2016). The Gini coefficient “is a way of comparing how distribution of income in a society compares with a similar society in which everyone earned exactly the same account. Inequality on the Gini scale is measured between 0, where everybody is equal, and 1, where all the country's income is earned by a single person” (http://www.bbc.com/news/blogs-magazine-monitor-31847943).

43 See generally Fairfield, Tasha A., Business Power and Tax Reform: Taxing Income and Profits in Chile and Argentina, 52 Latin Amer. Pol. and Soc'y 2 (2010); see also Fairfield, Tasha A., Private Wealth and Public Revenue in Latin America. Business Power and Tax Politics (2015).

44 Kleinbard, supra note 34, at 3.

45 For a particularly interesting argument on these lines, see Dietsch, Peter, Catching Capital. The Ethics of Tax Competition 2325 (2015).

46 See generally Reuven Avi-Yonah, International Tax as International Law (2007).

47 Id. at 3.

48 Jeffrey Owens & Mary Bennett, OECD Model Tax Convention, OECD Observer (Oct. 2008), http://www.oecdobserver.org/news/archivestory.php/aid/2756/OECD_Model_Tax_Convention.html (showing more than 3,000). Double Tax Treaties, ICAEW, http://www.icaew.com/en/library/key-resources/double-tax-treaties (showing over 1,300). According to Rixen, “in 2004, 90.6 per cent of all possible bilateral treaties among OECD members were in place.” See Rixen, Thomas, The Political Economy of International Tax Governance 115 (2008).

49 Tax Treaties, Tax Justice Network, http://www.taxjustice.net/topics/corporate-tax/tax-treaties/. See also the description of the political resistance of the initial proposals for a financial tax before the 2008 financial crisis in Peter Wahl, More Than Just Another Tax, in Pogge and Mehta, supra note 34, at 205–07.

50 Henry, James S., Let's Tax Anonymous Wealth, in Pogge & Mehta, supra note 34, at 37.

51 Krishen Mehta & Erika Dayle Siu, Ten Ways Developing Countries Can Take Control, in Pogge & Mehta, supra note 34, at 340.

52 Lee Corrick, The Taxation of Multinational Enterprises, in Pogge & Mehta, supra note 34, at 175.

53 Kleinbard, supra note 34, at 129.

54 Kleinbard makes a similar point, supra note 34, at 144. Nevertheless, I do not share his view that this is only, or mainly, a problem of the system being designed over non-commercial and noneconomic premises, id. at 145, and hence of the connection principle to tax MNC—in his argument a “territorial tax model”—for the reasons given in the last Section of this Article.

55 Nicholas Shaxson & John Christensen, Tax Competitiveness – A Dangerous Obsession, in Pogge & Mehta, supra note 34, at 266.

56 Kleinbard, supra note 34, at 132. When finalizing this Article the European Commission ruled that Apple has to pay €13 billion plus interest in taxes because of illegal tax benefits given by Ireland, as reported by Sean Farrell & Henry McDonald, Apple Ordered to Pay €13bn After EU Rules Ireland Broke State Aid Laws, Guardian (Aug. 30, 2016), https://www.theguardian.com/business/2016/aug/30/apple-pay-back-taxes-eu-ruling-ireland-state-aid.

57 Wahl, supra note 49, at 208.

58 In Chile, for example, a tax reform was recently passed to increase revenue to finance the public education reform. A reform that could be read as the triumph of the 2011 student movement. As the tax reform will only be put into effect in 2018, however, there has been space to increase the opposition to it and some are strongly lobbying to abolish it.

59 See all the proposals contained in the recently published book edited by Pogge & Mehta, supra note 34.

60 First Steps Towards Implementation of OECD/G20 Efforts Against Tax Avoidance by Multinationals, OECD (Feb. 6, 2015), http://www.oecd.org/ctp/first-steps-towards-implementation-of-oecd-g20-efforts-against-tax-avoidance-by-multinationals.htm.

61 OECD/G20 Base Erosion and Profit Shifting Project, Explanatory Statement 4, http://www.oecd.org/ctp/beps-explanatory-statement-2015.pdf.

62 Id. at 9.

63 Id.

64 Piketty, supra note 29, at 515.

65 Id. at 516.

66 Id. at 517.

* Universidad Adolfo Ibáñez, Chile, contact: . I thank all those who took part in the workshop Democracy and Financial Order: Legal Perspectives at Goethe University Frankfurt on September 2–3, 2015, where I presented an early draft of this paper, for their questions and comments, and to Fernando Atria for reading and commenting on a version of this paper. I would like to give special thanks to Silvia Steininger and Matthias Goldmann, not only for organizing and inviting me to the workshop, but also for their very detailed comments and suggestions that helped me improve and clarify the argument.

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An Alert from the Left: The Endangered Connection Between Taxes and Solidarity at the Local and Global Levels

  • Saffie G. Francisco

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