What are the Politics of the CLIPH-rate tax?

I believe an argument can be made for my taxation proposals from a number of political philosophies. However, in terms of political ideologies, my proposals occupy an unusual position that does not fit neatly on the usual political compass. This means that it does not readily fall within the common political positions.

I believe this is a huge strength for my proposals: I believe it should be attractive to a large number of people who currently take positions across the political spectrum. However, while this is an advantage in the long-term, it could be a hindrance in the short-term. After all, while there is something about the proposals that most people would like there will often be another element which goes against their current thinking.

For those on the political right the proposal should be attractive as it contains strong private property rights, and encourages work and personal responsibility. Work is encouraged because the number of hours people work (as a generalisation of the scheme) is taken into account in determining tax rates: people who work longer for their income will be taxed at a lower rate. It encourages personal responsibility as the redistribution is calculated on the basis of the amount of work someone does and not the amount of wealth they have. If someone chooses to spend their income in the short term they will not be entitled to any additional resources later on as a consequence.

For those on the left the proposal should be attractive for the amount of redistribution it can provide. I believe my proposals, if applied consistently, should enable the most economically fortunate to be taxed sustainably at the highest possible rates. In parallel, it would provide the highest possible economically sustainable subsidies to workers.

I would think that on the basis of the advantages specified above the approach should be appealing to centrists, who would also approve of my liberalism and some of the related proposals I make. As the originator of the proposals I would consider myself a liberal person.

One way to put the political position of the CLIPH-rate tax is that of a superior version of the so called “third way.” This garnered attention in the 90's and which is associated in the UK with the New Labour movement, and is somewhat related to Clinton’s position in the USA. Left-wingers are now disillusioned with this approach to politics as it was ineffective at delivering economic equality; New Labour was too in thrall to the market and thereby blinded to special interests (often of the very wealthy and the finance industry).

Despite this criticism of the first iteration of the third way approach to politics, I do not think that the answer for progressives is to revert back to statist solutions. Instead, we should be developing taxation and earning subsidy policies that make use of the best of the market while assisting those who do not do as well from the market economy.

The proposals in Rethinking taxation are designed to achieve what the initial third way failed to do. Tax those who do well out of the market system and do as much as possible to support those who work hard but receive relatively little in return. 

Rethinking Taxation now also available from more online bookstores

Rethinking taxation has so far been available from Amazon stores throughout the world.

It is now also available at Waterstones and Foyles in the UK and Barnes and Noble in the US!

Look out for it at your favourite online book store!

What is the Comprehensive Acquired Income tax base?

My proposal for a Comprehensive Acquired Income tax-base takes elements of Comprehensive Income (or Accretion, or Schanz-Haig-Simons) taxation and also elements of Consumption taxation.

The idea is to record the market value of the resources that people receive from their society, at the time at which the person receives them. This means that if someone receives some money, goods or services from another party (whether it be their employer, a return on an investment, or a gift from another person) at a particular time the assumption should be that this would count as gross income and be liable for tax.

As it is designed be applied on a lifetime basis, my Comprehensive Acquired base removes the most controversial requirement of the Accretion approach. This is that everyone’s property should be valued every year in order to find out how much it has changed in value. This would be a very difficult, and no doubt controversial, annual undertaking, and few people propose applying this traditional ideal in the real world. Furthermore, people may not have the liquid assets to pay the tax liability on property they own which has increased in value. The Accretion approach therefore shares this controversial aspect with proposals to tax people on the total value of their property; the wealth tax.

Removing the focus on the annual change in wealth as part of the tax calculation raises the question of when the tax is applied. The simple answer is that gains are taxed when they are realised. When someone receives money from their employer or sells something they own for a profit this would then count as part of their lifetime taxable income. This lifetime tally would therefore increase as time goes on, and lifetime averaging proposals such as mine allow the denominator by which to divide this lifetime total to increase as well.

It is possible within this approach to allow the deferral of taxation on certain forms of gains, for example investment gains. The idea is that certain types of income could be ring-fenced such that any gains that remain within the ring-fence remain untaxed. It is only when people switch resources from these special categories to a form which can be used for consumption (such as a current account) then the lifetime gains on such ring-fenced investments can be accounted. Once the total gain exceeds the total invested then these profits can count as lifetime income. In many cases this profit will occur when the taxpayer dies and their property is valued/constructively realized prior to disbursal. Financial investments and company ownership are the obvious candidates for such treatment, but a primary residence is another potential category.

I have described my proposal at various points as an ‘income’ tax base and as a hybrid with consumption taxation, which needs to be explained. If the state were only to tax financial income this might encourage employers and benefactors to provide resources in the form of services instead of financial income. In order to close this loophole, it is therefore necessary to insist that the market value of goods and services that have been paid for by others should also be included in someone’s lifetime tax calculation.

Clearly the presentation provided above is a relatively simple one and there are more difficult issues and exceptions to take account of. For example, I would argue that certain forms of income should be excluded, such as small non-financial gifts. These gifts, as long as their cumulative value is small, are not resource-transfers but rather tokens of affection which need not be taxed. However, I will have to point readers towards Chapter 4 of Rethinking Taxation for a fuller discussion of my tax base and potential exceptions to the principle that the market value of all income should count as taxable. 

My tax base proposals

In a previous blog I listed my tax base proposals among the innovations presented in Rethinking Taxation (Chapter 4, to be precise). I refer to my proposal as the Comprehensive Acquired Income tax-base. I thought it would be a good idea to briefly explain tax bases and this proposal.

What is meant by the ‘tax-base’? This is what is made use of in calculating the tax of the members of society. Most states employ multiple different taxes which make use of different tax bases (labour income, estate taxes, corporate taxes, VAT, sales taxes, various duties etc.). I refer to the use of multiple taxes as a broad tax base, as many types of transaction are taxed.

The broad base is popular choice for states as it provides a lot of tax revenues, though often each one is applied at relatively low rates. The advantage of relatively low rates on each of the taxes is that it will not discourage economic behaviour too much. The problem is that this will not be very progressive where the most economically fortunate will never have to pay more than the highest amount of tax charged, usually lower than 50% and often more like 20%.

Multiple broad-based taxes fall on those who make a lot of economic transactions, which means the rich and poor alike. VAT, for example, is not a progressive tax base as the cost will often fall on consumers, and the poor usually spend almost all their income on the necessities of life. Some claim VAT is progressive since food is zero-rated. However, many poorer people purchase hot food, while some very wealthy buy expensive ready meals from places like M&S, Waitrose and Fortnum and Masons.

For these and other reasons, many people have suggested the application of a more comprehensive tax base. The Comprehensive Income tax base was a popular theoretical approach by which to judge the tax system up until the 1970s. This is also sometimes referred to as the Accretion tax or the Schanz-Haig-Simons tax base after some of its prominent proponents. Consumption taxation has increasingly been considered an attractive alternative since it was proposed again in earnest in the mid-20^th century.

These comprehensive tax bases are considered less practical than the application of a broad base as it would be hard to reliably capture the amount of spending or income that people truly enjoy. Nevertheless, I believe that developments in Information Technology should lead us to reconsider the options for tax calculations. I propose a lifetime approach to taxation, which does not work well with the traditional comprehensive income tax base, but I believe my hybrid of the Accretion and Consumption tax bases represents a way of capturing the lifetime benefits that people get from their society. 

In my following post I will describe my Comprehensive Acquired Income approach.

Hourly averaging and the need for a job guarantee scheme

One of the proposals I make in Rethinking Taxation which I did not list as one of the innovations presented in the book is that of a guaranteed job scheme. I did not list it as an innovation because such a notion—that the state should be the employer of last resort—has existed for a long time. After all, since unemployment is an evil, it is not a huge leap to think that the state should do something to respond to it.

Involuntary unemployment is a very important issue and there are various responses to it. These can be understood in terms of their conditionality. At one extreme no conditions could be placed on unemployment payments: there could be a guaranteed basic income for all. At present the conditions in the UK for “jobseekers allowance” is that claimants attend regular meetings, actively seek and apply for work, and sometimes that they undertake training or (otherwise) unpaid work. The strongest (reasonable) condition available is that claimants should have to do work appointed by the state in order to qualify for assistance.

If the state insists upon the strongest conditions then it should have to provide work. My hourly averaging proposal takes account of the amount of time that people work when calculating their tax rate, with lower taxes for those who work more hours. This makes it highly important that everyone should be able to get work, and that those who receive hour credits should have to work in order to obtain them. A guaranteed work/training scheme obviously follows and I therefore include one as a necessary component of my CLIPH-rate tax proposal.

This position sets me in opposition to “basic income” supporters, and I have blogged about this previously. However, I wanted to discuss here some of the complaints about guaranteed work programmes and why these are not too much of a problem for my hourly averaging proposals.

My response to a lot of these complaints will make reference to a point that I should explain beforehand. As part of my hourly averaging proposals I suggest that workers on very low wages should be provided with an earnings subsidy. This means that the minimum wage can be reduced (for most employers at least) without jeopardising the standard of living for workers. Removing the minimum wage should open up a lot of possibilities for types of work that would not be economical at the minimum wage. This means that the involuntary unemployment rate should be relatively low as there should be more work options.

One complaint about guaranteed work programmes is that they would effectively undermine certain forms of paid work. A common example is that if unemployed people are tasked with cleaning up the local streets then this will take away the need to employ streetsweepers. These workers would end up doing the same work for less money as unemployed workers rather than provided with secure employment. Unions are therefore sceptical of proposals.

My response to this is to argue that in the first instance job schemes should design specific projects that may not be undertaken otherwise. Furthermore, other employers could request spare workers to undertake work for which they have a shortage of workers. However, this leads on to the second complaint.

The second complaint is that firms can take advantage of the scheme in the same way that occurred with the streetsweepers. They could lay off their workers and then request to have free work from the guaranteed work scheme. In order to counter this I would suggest that workers should only be lent from the scheme to profit-seeking businesses if the business in question pays the lent workers (or compensates the state) at a suitable rate. This rate should perhaps be set at the hourly amount at which workers would receive no earning subsidy. Employers would then consider employing people at a lower rate than they would have previously, no doubt making industries and products competitive that were not at the previous minimum wage.

The third complaint I will mention is an economic one. This is the argument that having a reserve of unemployed (or underemployed) workers is good for the economy as it keeps inflation low. The main reason for this is that the spare workers add flexibility into the job market. If there were full employment then industries looking to expand would have to pay a significant premium in order to attract workers. These industries would then be less competitive than they would otherwise be, and the companies involved will pass these costs on to their consumers.

Would the guaranteed work scheme therefore cause inflation? Some economists have argued that full employment would not cause inflation, and if they are correct this worry does not apply. However, what if they are wrong and some products would increase in price due to the changes I advocate? In this case, I would suggest that the price increases indicate that the products are currently too cheap; the desperation of the workers in the industry is what is keeping the price low. For egalitarians such as myself, it is simply unfair to cause misery to a few in order to improve the position of everyone else (or a small group).

Furthermore, another important point is that hourly averaging would reduce some prices as well. By enabling a reduction in the minimum wage, some types of work could be done for less money, with the saving passed on to consumers. For some items, prices would drop, while for others prices would rise.

I feel confident that a bit of price inflation would be an acceptable price to pay to greatly reduce the misery caused by involuntary unemployment. I don’t deny that my fundamental tax system proposals would alter prices throughout the economy. Some items would increase in price will others would decrease. Given that the increases would arise from an improvement for low-paid workers who are usually in the worst position in society, the changes would clearly be a moral improvement overall. 

What is the CLIPH-rate tax?

The CLIPH-rate tax is the acronym I developed as a shorthand way of describing my taxation proposals. It stands for Comprehensive Lifetime Income Per Hour rate.

This can be split into two components; hourly averaging and my proposal for a comprehensive acquired income tax base. The two proposals complement each other very well and are linked by the Lifetime element of the acronym.

The first component is my hourly averaging proposal. This is described in the acronym as ‘per hour rate’ and it is explained in detail the first two chapters of my book.

Hourly averaging allows taxes to be calculated not only on the amount that people earn but also the amount of time they have spent working (or doing some suitable alternative activity). This means that those who work longer for less pay can be assisted while those who earn a lot for each hour they work can be taxed.

The second component is my proposal to take account of all the economic gains that people receive during their life when determining their tax rate. This is the “Comprehensive Lifetime Income” parts of the acronym. My proposal can be understood as a hybrid which combines aspects of comprehensive income with consumption taxation.

These two components, along with others that go with them, are explained in more detail in my book, and I have said (and plan to continue to say) more about them in this blog as well. In my next blog I will explain the advantages of the CLIPH-rate tax in the briefest terms. 

List of innovations in “Rethinking Taxation”

In my previous post I explained the main innovations I present in Rethinking Taxation. Some may find it useful to have these presented as a list. I have done this, with page references in brackets:

Primary innovations
1. Lifetime hourly averaging (Part I: page 13-73, see also pages 99-152, 164-68)
2. Comprehensive acquired income (84-97)
3. Only realised capital gains are taxed, and these gains can be untaxed until they are made available for personal consumption expenditure (pp. 88-91)

International taxation

4. International tax proposal (pp. 154-63)

Information Technology proposals

5. Proposals to use Information technology to enable greater fairness or effectiveness within the tax system (3)

a) Proposal to integrate financial and taxation systems to achieve automatic withholding at source (91-2)
b) Proposal to designate the owner of all financial accounts and products and items that are i) valuable, ii) likely to increase in value (92-3)
c) The suggestion of online interaction with the tax authority in order that people can i) provide information, ii) approve or deny ownership and transfer claims made by others, iii) run scenarios in order to help them make decisions about their work. (6-7, 52)

Other innovations, proposals or solutions:

6. Proposal to integrate benefits and tax system using negative hourly tax-rates (26-8, 41, 68)
7. Combining student, disability and caring support into the tax system (37-44)
8. Using the tax system to administer punishments (46-7)
9. Proposal to allow the merging of personal tax accounts to create a joint account (106-7)
10. Lifetime taxation of resources for children (100-3)

I have not listed proposals which are reasonably familiar such as a guaranteed work programme (38-41) and the use of a sovereign wealth fund to ensure that long-term investments are made (72, 120-4)

New proposals and innovations presented in “Rethinking Taxation”

The title of my book makes a bold claim; that I present new thinking about taxation. I should therefore say something about the innovations that the book contains. Some people may only be interested in one or two of the proposals, but a lot of them complement one another very well.

The main innovation is the one mentioned in the subtitle; hourly averaging. This is the new form of tax calculation that is explained and developed in part I of the book. I will no doubt explain this proposal at various different lengths in future blogs. However, the basic idea is that the amount of time people spend working should affect the amount of tax that they pay. Combining together income and time spent in my proposed averaging calculation is a superior basis for taxation than income alone.

The second major proposal that I make is for a tax base that would work very effectively with lifetime hourly averaging. My proposal is for a hybrid between comprehensive income and consumption taxation. I refer to this as the Comprehensive Acquired Income tax base as it aims to capture all the forms of valuable gain that people receive. This will include financial gain such as payment in money, but should also include the value of the goods and services that people receive (of course with a few exceptions, such as small gifts up to a certain value). Including all forms of income ensures that people will be taxed in accordance with their economic fortune—it does not matter what form of fortune people have as all will be included. A further advantage of this is that people who have multiple forms of good or bad economic fortune can be distinguished more effectively.

The third main innovation I present in Rethinking Taxation is a component of my Acquired Income tax proposals. This holds that people should be able to invest their own (after-tax) resources in certain kinds of investment and that these should remain untaxed until the gains are realised. It can be referred to as the realised gains approach to capital gain and investment income. The idea is that as long as money is invested in a particular kind of asset (financial being the obvious ones but a primary residence would be another possibility) then no tax is due. Returns on these investments would only be taxed when the return to the owner exceeds the amount of their own money that they put in. The idea is that all gains should be taxed, but that this tax can be deferred for some kinds of investment. This allows people a degree of flexibility in their investments and means that in some cases people will not pay tax until they die (in which case they are unaffected by the tax).

Another proposal I present in the book is one that I have also written about elsewhere. This is my proposal for a method of taxinginternational citizens on their global income. The proposal specifies how to calculate a global tax-rate based upon the rates within the states with which the individual has a historical relationship. I argue that states who would have taxed the individual more should be provided with more of the revenue from the taxpayer as a counter-incentive to the tendency for states to compete tax-rates down in a global “race-to-the-bottom.”

The proposals above all become possible by using Information Technology but I also present other ideas to make more use of IT. One proposal is that if you move to a comprehensive acquired income tax base it might be advisable to switch to real-time tax withholding by financial institutions. When someone receives any money from an account other than their own this could be taxed at the appropriate rate. This means all financial accounts would have to be designated with their owner, which should have the additional advantage that all ownership and all financial should in principle be traceable back to real persons.

Further information could be recorded in the form of asset registers. These would record the owners of certain kinds of item, as is already done for land and automobiles. These registers could be extended to other items such as artwork and jewellery, and also integrated with the tax system so that capital gains would be automatically recorded. This would have the advantage of making ownership disputes much simpler to resolve. Finally, I propose that taxpayers should have a means of interacting with the tax authority in order to provide information about taxable items that they buy, sell, and gift. Taxpayers could also use this to run scenarios when they are considering different options such as a new job.

Finally, there are many innovations that are internal to lifetime hourly averaging. The first is the proposal to provide a lot of benefits through the tax system using hour credits (and negative hourly tax-rates where this applies). This means that financial compensation can be provided for the disabled, students, and carers using the hour credit system. Hour credit fines could also be used as a form of punishment, since these would be cheaper simpler to administer fairer than the alternatives. I believe it would be fairer as well as the fine would relate to the economic position of the person being fined.

Lifetime taxation also provides opportunities to change the tax system for children and cohabiting couples. I propose a way of taxing children using their lifetime tax account where they receive a lot more resources than their peers. I also propose that people should be able to merge their lifetime accounts, and demerge them later on if necessary.

The above descriptions give some idea of the sort of ideas that I present in the book, some of which I would like to blog about separately, and in some cases develop further. I hope these will be of interest to people interested in economic justice and politics, as well as those interested in taxation policy. 

Hourly averaging explained

Hourly averaging is the primary idea contained in Rethinking Taxation, so it is probably a good idea to set out briefly what this means. Hourly averaging is a new way to work out what tax-rate people should pay. It therefore rivals proposals that calculate the tax rate based on the value of a particular transaction (such as most duties and consumption/sales/ excise taxes). The main rival, however, is the idea that the total amount that someone receives in a year is the appropriate determinant of someone’s tax rate (as with income tax).

Hourly averaging alters this annual taxation in two opposite directions. On the one hand the horizon of the tax is increased from a single year to the lifetime of the individual. So instead of treating each year’s income separately in calculating tax, all the taxpayers’ income is included. This is not a novel proposal: the idea of multiple year tax averaging and its logical extension of lifetime averaging are longstanding proposals.

The innovation comes in the other part of hourly averaging. Instead of dividing the income by the number of years that have passed, I propose to use hour credits as the denominator. People would receive hour credits for a number of reasons, but the archetypal source of an hour credit is that someone has performed an hour of work for their employer. The employer would inform the tax authority of the work done, and this would be included in their tax calculations from then on.

As I explain in the book, calculating tax on a lifetime basis using hour credits allows for highly progressive tax rates. High rates can be applied to those with a high hourly average income. Furthermore, negative hourly tax rates can provide a powerful earning subsidy to those who have a low hourly average income. The tax graph could look something like this:

In order to illustrate how hour credits work, consider Ginny and Humphrey who work for the same company. Ginny has always been paid £24 per hour while Humphrey is paid £8 and both have 10,000 hour credits built up over their lives. Their total lifetime incomes are £240,000 and £80,000. Ginny’s tax rate is 50% while Humphrey’s is zero percent, and so Ginny has received £120,000 lifetime net income and paid the same amount in taxation.

If Ginny and Humphrey’s employer swapped their roles around their hourly average will change. In the subsequent month, they both receive 200 hour credits. Ginny’s total earnings are now £241,600 and her average has dropped to £23.69 per hour. Assume this reduces her tax rate to 49.5%, in which case she should have paid £119,592 across her lifetime. This is less than her existing lifetime tax payments, and so Ginny will receive a tax rebate of £408 along with her wages of £1,600. Her net income for the month will therefore be £2,008. Humphrey receives £4,800 gross income for the month, which increases his lifetime gross income to £84,800. His hourly average is now £8.31, which increases his lifetime tax rate to 1%. His lifetime tax is therefore £848 and he receives £3,952 in net income for his month’s work.  

It may appear that the tax system is extremely generous to Ginny and Humphrey at this point in time. Humphrey’s tax rate does not rise to the level that Ginny was paying and Ginny receives a tax rebate for her past tax paid on top of her wages. This is in fact an advantage of hourly averaging from the perspective of taxpayers; it smooths out people’s net income over time. Once Ginny and Humphrey have had their new jobs for 10,000 hours they would both have received £320,000 in total and have an hourly average of £16. They would have the same tax rate at this point; which I will say is 20%. However, as time goes on with their new income Humphrey’s tax rate would increase while Ginny’s rate would drop. After 100,000 hour credits Humphrey’s average would be £22.40 and he would therefore have a lifetime tax percentage in the high forties.

Taxing people in this way means that a lot of revenue can be generated from the most economically fortunate (those who make use of their talents or position to earn economic rents) and shared to those who work hard but for low pay. No other proposal promises to do this.

Furthermore, calculating tax in the above manner would mean that everyone would want more hour credits. After all, this would reduce their tax-rate for any given amount of income. Hour credits would effectively represent additional income to their recipients; each person would know that they receive x amount of money whenever they get an additional hour credit. This means that people will have a strong incentive to work longer, counteracting the common complaint that taxing the fortunate and assisting the less fortunate discourages people from working.

Hourly averaging is a proposal that utilises the advantages of the market economy such as the incentives to produce and consume in the most efficient way. However, it counteracts the inequities that market economies perpetuate; that some do very well while others struggle. The above description and examples present a simple example of how the proposal would work. More detail on the proposal and responses to various concerns can be found in Rethinking Taxation.

What is hourly averaging?

Hourly averaging is the primary idea presented in Rethinking Taxation, so it is probably a good idea to set out briefly what this means. Hourly averaging is a new way to work out what tax-rate people should pay. The best available basis on which to determine someone's tax rate is their lifetime average hourly income.

It therefore rivals proposals that calculate the tax rate based on the value of a particular transaction (such as most duties and consumption/sales/ excise taxes). The main rival, however, is the idea that the total amount that someone receives in a year is the appropriate determinant of someone’s tax rate (as with income tax). 

A year or longer?

Hourly averaging alters this annual taxation in two opposite directions. On the one hand the horizon of the tax is increased from a single year to the lifetime of the individual. So instead of treating each year’s income separately in calculating tax, all the taxpayers’ income is included. This is not a novel proposal: the idea of multiple year tax averaging and its logical extension of lifetime averaging are longstanding proposals.

There are several advantages to having a longer period. One is that it avoids an arbitrary point in the year around which people might organise their affairs for the sole aim of minimising their tax bill. Even more importantly, it gives a better idea of how economically fortunate the taxpayer is. Some people spent many years developing skills and then earn a lot for them later. Others might have very fluctuating income. A highly progressive tax system would tax these people a lot during their good years but not take account of the less good ones. 

Averaging by time or by hours worked?

The innovation comes in the other part of hourly averaging. Instead of dividing the income by the number of years that have passed, I propose to use hour credits as the denominator. People would receive hour credits for a number of reasons, but the archetypal source of an hour credit is that someone has performed an hour of work for their employer. The employer would inform the tax authority of the work done, and this would be included in their tax calculations from then on.

What are the benefits?

Calculating tax on a lifetime basis using hour credits allows for highly progressive tax rates. High rates can be applied to those with a high hourly average income. Furthermore, negative hourly tax rates can provide a powerful earning subsidy to those who have a low hourly average income. This means that a lot of revenue can be generated from the most economically fortunate (those who make use of their talents or position to earn economic rents) and shared to those who work hard but for low pay. No other proposal promises to do this.

Using hours in the calculation provides a strong incentive for people to work more that progressive taxes can otherwise remove. Everyone would want more hour credits. After all, this would reduce their tax-rate for any given amount of income. Hour credits would effectively represent additional income to their recipients; each person would know that they receive x amount of money whenever they get an additional hour credit. This means that people will have a strong incentive to work longer, counteracting the common complaint that taxing the fortunate and assisting the less fortunate discourages people from working.

Hourly averaging is a proposal that utilises the advantages of the market economy such as the incentives to produce and consume in the most efficient way. However, it counteracts the inequities that market economies perpetuate; that some do very well while others struggle.

You can find out more about hourly averaging from my book 'Rethinking Taxation' or by looking through more of my blogs. If you have any thoughts please leave a comment below or send me a direct message.

It's here!

10 years ago I had an idea about taxation...

This week I finally got a copy of the resulting book in my hands

Available from Amazon.

International Taxation Proposals

My international taxation proposals are set out in a few papers I have written and also in chapter eight of Rethinking Taxation. Each of these presents the proposal with a different focus.

The first paper I wrote on the topic has been published in "Comprehensive lifetime taxation of international citizens: A solution to tax avoidance, tax competition, and tax unfairness,” in Jeremy Leaman and Attiya Waris (eds.), Towards a New Political Economy of Tax Justice (Oxford: Berghahn Books, 2013).

In this I set out my proposal for taxation of international (or multinational) citizens and argue that the approach solves many problems in international taxation. I argue that there are practical reasons why states would agree to cede some of their power over tax gathering if recent trends in the "offshoring" of the tax base continue. I also argue that it provides a useful moral baseline against which we can judge people's tax contributions.

The proposal I make is a method of calculating a global tax rate for people (though it could also be applied to companies) who have a relationship with multiple countries. I therefore distinguish between people who are properly taxed only by their primary state of birth and residence from 'international citizens' who would be taxed according to a formula. This is calculated by determining the relative strength of their relationship with their past states (and therefore their citizens), and the amount of tax they would have been charged if they had been resident of each of those states alone.

I have set out the philosophical justification for my approach in an article in the journal Moral Philosophy and Politics : "Realising International Justice: To Constrain or to Counter-Incentivise?"

The advantage of my proposals arises in the way that the revenues from this global tax on international citizens is shared out. Instead of sharing out revenues in accordance with the relationship of the states involved, there would be a counter-incentive which would reward the states which would tax the individual at the highest rates. This counteracts the tendency for states to compete down on tax rates, though it does not stop states from doing this if they wish to.