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Introduction: Democracy and Financial Order – Legal Perspectives Read chapter Read first chapter

2018 | OriginalPaper | Chapter

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

Author : Francisco Saffie G.

Published in: Democracy and Financial Order: Legal Perspectives

Publisher: Springer Berlin Heidelberg

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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 havens) are analyzed 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 chapter 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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previous chapter Neoliberalism and Law: The Case of the Constitutional Balanced-Budget Amendment
next chapter Public Law’s Rationalization of the Legal Architecture of Money: What Might Legal Analysis of Money Become?
Footnotes
1
On the concept of neoliberalism, see Biebricher, chapter “Neoliberalism and Law: The Case of the Constitutional Balanced-Budget Amendment”.
 
2
Harvey (2005); Brown (2015), pp. 20–21; Raymond Plant (2010), Ch. 9. On the general characteristics of neoliberal political economy, see Jessop (2002), pp. 95–139. 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 Miliband (2009).
 
3
Streeck (2014), pp. 6–26.
 
4
Id., pp. 47–96.
 
5
Id., pp. 97–164.
 
6
Id., p. 5.
 
7
For an argument showing how neoliberal policy brings economic growth, see Paus (1994), pp. 31–56.
 
8
Crouch (2013), p. 23.
 
9
Id., p. 24.
 
10
Id.
 
11
Harvey (2006), p. 29. See also Harvey (2005).
 
12
See Harvey (2006), p. 43.
 
13
See also Crouch (2004), pp. 31–69; Crouch (2011).
 
14
See Crouch (2004), p. 31.
 
15
Id., p. 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 (2015), pp. 37–41.
 
18
See Brown (2015), p. 9–10, Ch.​ 1.
 
19
Id., p. 31.
 
20
Id., p. 33.
 
21
Id., p. 35.
 
22
Id.
 
23
Streeck (2012), pp. 27, 41.
 
24
Id., p. 42.
 
25
Id.
 
26
See Saffie (2014), Ch.​ 3 (on file with author).
 
27
See generally Harberger (1962), p. 3; Pomerleau (2015).
 
28
See generally Goldberg (2013).
 
29
This is not strange as progressive income taxes were only established around the beginning of the twentieth century. See Piketty (2014), pp. 498–508.
 
30
Quoted in Stolleis and Dunlap (2004), p. 224.
 
31
Id., p. 219.
 
32
Freedman (2004), p. 15.
 
33
According to Hensel, the legal duty to pay taxes is “born with the realization of the taxable event.” Hensel (2005), p. 154.
 
34
For further details of this argument, see Saffie (2014), Ch.​ 2. 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.” Kleinbard (2016), p. 132. 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 Valdés (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 (1962), 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 (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 Murphy and Nagel (2004).
 
42
Fairfield and Jorrat (2016), p. 1. 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 (2010), p. 2; see also Fairfield (2015).
 
44
According to the Chilean constitution the President has exclusive powers in fiscal policy, hence is the only authority that can propose any change in tax law.
 
45
Because of the effect of the proportional tax rate credited against a progressive tax rate, the first will result in most cases in an excess tax paid that could be claimed back by taxpayers.
 
46
An economic aim was to increase revenue in 3.1 % of the GDP to finance public expenditure, particularly, the education reform porposed by the government.
 
47
Of course, because of what was said in note 45 above, only the very rich would have had effectively to pay personal income tax at the end of the year (as the credit of the tax advanced by the legal entity would not be enough to satisfy the personal tax).
 
48
Detmold (1989), p. 2.
 
49
Kleinbard (2016), p. 3.
 
50
For a particularly interesting argument on these lines, see Dietsch (2015), pp. 23–25.
 
51
See generally Avi-Yonah (2007).
 
52
Id., p. 3.
 
53
Owens and Bennett (2008) (showing more than 3000). ICAEW (showing over 1300). According to Rixen, “in 2004, 90.6 per cent of all possible bilateral treaties among OECD members were in place.” See Rixen (2008), p. 115.
 
54
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 Wahl (2016), pp. 205–207.
 
55
Henry (2016), p. 37.
 
56
Mehta and Dayle Siu (2016), p. 340.
 
57
Corrick (2016), p. 175.
 
58
Kleinbard (2016), p. 129.
 
59
Kleinbard makes a similar point, see Kleinbard (2016), p. 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. p. 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 chapter.
 
60
Shaxson and Christensen (2016), p. 266.
 
61
Kleinbard (2016), p. 132. When finalizing this chapter 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 Farrell and McDonald (2016).
 
62
Wahl (2016), p. 208.
 
63
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.
 
64
See all the proposals contained in the recently published book edited by Pogge and Mehta (2016).
 
65
OECD (2015).
 
66
OECD/G20
 
67
Id., p. 9.
 
68
Id.
 
69
Piketty (2014), p. 515.
 
70
Id., p. 516.
 
71
Id., p. 517.
 
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Metadata
Title
An Alert from the Left: The Endangered Connection Between Taxes and Solidarity at the Local and Global Levels
Author
Francisco Saffie G.
Copyright Year
2018
Publisher
Springer Berlin Heidelberg
Book
Democracy and Financial Order: Legal Perspectives

Print ISBN: 978-3-662-55567-5

Electronic ISBN: 978-3-662-55568-2

Copyright Year: 2018

DOI
https://doi.org/10.1007/978-3-662-55568-2_9