Tax and jurisdiction – after Tobin we need to keep campaigning for tax fairness

The world’s debt is now over $100 trillion, twice the global GDP. That is $100,000,000 million. Inequality within countries and between countries continues to rise. The medicine from the IMF, World Bank and European Central Bank of austerity, cuts, and privatisation has made things worse, not better.

Meanwhile every major power – USA, China, Russia, EU – has an extractive elite group which continues to rake in the money, even as local wages drop, unemployment rises and their economies stagnate.

I want to float the idea here that globalisation is a problem, not new in itself, but because it is only half-finished. We have had the liberalisation of financial markets, where funds flow in absolutely massive amounts every second from one computerised stock exchange to another. But this is tax free, making markets more powerful than governments.

There has been the proposal for a Tobin Tax, a small percentage of tax to be taken from every international flow of funds. For whatever reason this hasn’t taken hold, and vested interest by the extractive elites seems as likely a reason as any.

As an alternative, lets look at the USA. Their tax authorities have a useful tool already in use. If a US citizen anywhere in the world receives money, then the US government can tax it. There are various rules, but the principle is important because it relates to jurisdiction.

So, let us imagine that we apply this to international companies as well as individuals, and that the UK adopted a similar rule. And France. And Germany. We can imagine the chaos. So international companies play the system and cut a sweetheart deal with the most desperate or obliging country within their operations.

Now let us think about modifying this policy. You must pay tax to country A unless you can show you have paid the same amount or more tax to country B.

It is the “or more” that is important here, because it stops a tax race to the bottom.

Would it be a race to the top instead? What is to stop any government setting a tax rate of 100 percent and trying to scoop the whole bowl – well, international companies would close down their operations in that territory.

So, imagine the EU governments agreeing a tax treaty on these lines, which would make a massive difference because they together are economically large enough in the world – they have market power.

In the film, The Day After Tomorrow, there is a scene in New York Central Library where the school pupils and others need to light a fire and keep warm until help arrives. They are uneasy about burning books until one of them finds shelves and shelves of books on tax law.

Maybe these tax books might also save the world, yes economically, but still with a massive human cost as we continue to get it wrong.

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