Realising International Justice: To Constrain or to Counter-Incentivise?

Miriam Ronzoni (2009) “The Global Order: A Case of Background Injustice? A Practice-Dependent Account”, Philosophy & Public Affairs 37, Peter Dietsch and Thomas Rixen (forthcoming) “Tax Competition and Global Background Justice”, Journal of Political Philosophy. This article has been available as an advance online publication since 2012. However, since the page references on the advance publication will not necessarily correspond to those of the printed version, I will often refer to section numbers rather page numbers.

For a sample of the literature on global justice see: John Rawls (1999) “The Law of Peoples : With ‘The Idea of Public Reason Revisited’”, (Cambridge, MA, Harvard University Press), Thomas Pogge (2002) “World Poverty and Human Rights : Cosmopolitan Responsibilities and Reforms”, (Cambridge, Polity Press), Simon Caney (2001) “Review Article: International Distributive Justice”, Political Studies 49, ——— (2006) “Justice Beyond Borders : A Global Political Theory”, (Oxford, Oxford University Press), Thomas Nagel (2005) “The Problem of Global Justice”, Philosophy & Public Affairs 33, A. J. Julius (2006) “Nagel’s Atlas”, Philosophy & Public Affairs 34.

Ronzoni “The Global Order: A Case of Background Injustice? A Practice-Dependent Account”, 234.

In John Rawls (1996) “Political Liberalism”, (New York, Columbia University Press), Lecture VII, §4 (265–9). An earlier version of this was published as: ——— (1977) “The Basic Structure as Subject”, American Philosophical Quarterly 14.

Ronzoni “The Global Order: A Case of Background Injustice? A Practice-Dependent Account”, 457.

Ibid., 250–1.

Ibid., 253–4.

Dietsch and Rixen “Tax Competition and Global Background Justice”, Section I.A.

Ibid., sec. I.B.

This is the argument presented by Reuven S. Avi-Yonah (2000) “Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State”, Harvard Law Review 113.

Indeed, some have challenged the assumed impacts of tax competition entirely based upon the empirical data from the first 20 years of relatively open capital markets, for example Duane Swank (2002) “Global Capital, Political Institutions, and Policy Change in Developed Welfare States”, (Camgridge; New York, Cambridge University Press), 248–57. In response to such an argument, I would point out that even if the expected trend did not emerge strongly in the early period of relatively free movement of capital, the process does appear to be happening more and more as time goes on. Furthermore, taxation revenues may have been enhanced due to economic over-activity prior to the 2008 financial crisis. Advanced states seem to have been struggling to obtain both tax revenues and economic growth in the years since this crash.

The principle seems to relate to the longstanding benefit principle in taxation literature. This is that people should pay tax in proportion to the extent that they benefit from the society in which they live. For criticism of the benefit principle, see Liam Murphy and Thomas Nagel (2002) “The Myth of Ownership: Taxes and Justice”, (Oxford, OUP), 16–20. However, Dietsch and Rixen emphasise that their membership principle is distinct from its relative the benefit principle: Dietsch and Rixen “Tax Competition and Global Background Justice”. I will agree that a similar notion will be useful in a multi-state world.

Dietsch and Rixen “Tax Competition and Global Background Justice”, sec. II.A.

This echoes the call for automatic information exchange by tax justice campaigners and academics; Sol Picciotto (2011) “Regulating Global Corporate Capitalism”, (Cambridge, Cambridge University Press), 253–6. Some states already engage in automatic information exchange, though “tax havens” or secrecy jurisdictions are generally reluctant to agree to such measures without substantial pressure.

Furthermore, the tax base is highly relevant to the second set of rival principles I discuss below.

William Vickrey (1972) “Agenda for Progressive Taxation (with a New Introduction)”, (Clifton, NJ, Augustus M. Kelley).

Dietsch and Rixen “Tax Competition and Global Background Justice”, sec. II.B.

Ibid., 13.

Ibid., 15.

Admittedly, the constraint is based on a very limited notion of harming the affected states. The approach would be more troubling if the notion of harm was specified in broader terms than it is. The constraint only makes reference to suboptimal conditions with regard to the fiscal sovereignty of other states, and so policies that would make other states worse-off in many other ways would pass the test.

Indeed, I argued that states would need to agree to constrain themselves in some regard in their own self-interest in Douglas Bamford, “Comprehensive lifetime taxation of international citizens: A solution to tax avoidance, tax competition, and tax unfairness,” in Jeremy Leaman and Attiya Waris (eds.), Tax Justice And The Political Economy Of Global Capitalism (Oxford: Berghahn Books, 2013).

Dietsch and Rixen “Tax Competition and Global Background Justice”, sec IV.B.

Ibid., sec IV.A, Ronzoni “The Global Order: A Case of Background Injustice? A Practice-Dependent Account”, 254–5.

Dietsch and Rixen “Tax Competition and Global Background Justice”, sec IV.A.

Prominent state-based liberal egalitarian views of distributive justice such as that of John Rawls and Ronald Dworkin would allow for variations based on at least some of these factors; John Rawls (2001) “Justice as Fairness : A Restatement”, (Cambridge, MA, Harvard University Press), ——— (1999) “A Theory of Justice: Revised Edition”, (Oxford, Oxford University Press), Ronald Dworkin (2000) “Sovereign Virtue”, (Cambridge, MA, Harvard University Press), Chs 2–4, 9.

Which campaigners such as the Tax Justice Network have suggested should more correctly be called “secrecy jurisdictions” rather than tax havens, since they are only a haven for tax avoiders and evaders, and because they often benefit tax evaders by allowing them to launder their ill-gotten gains.

Dietsch and Rixen “Tax Competition and Global Background Justice”, 18.

Ibid., 17–18.

If the tax base includes corporations, then I also agree with Dietsch and Rixen that corporations should be taxed using a system of unitary taxation with formula apportionment: Ibid., sec III.A. This means that all subsidiary companies in a multinational group should be counted as a single entity for the purposes of taxation and should have their taxation shared out in an agreed manner between the various countries with which they have a relationship. The proposal I outline in the following section can therefore be considered a form of weighted formula apportionment.

We might consider a system whereby points are awarded to the relevant states for different types of relationship. So a state may obtain 500 points for being the location of birth, 100 points relating to the primary state of each parent, 20 points for each year of education, 10 points for each year of citizenship with a state, 1 point for each $1,000 earned within a state, and so on. The share of this total held by each state would indicate the proportion of their relationship with the individual in question.

Thanks to an anonymous reviewer of the special issue for highlighting this concern.

Clausing and Avi-Yonah propose to focus only on sales since it is difficult for companies to alter their structure to avoid sales-based taxation; Kimberly A. Clausing and Reuven S. Avi-Yonah (2007) “Reforming Corporate Taxation in a Global Economy: A Proposal to Adopt Formulary Apportionment”, (Washington, DC, The Brookings Institution), 12–14. However, Picciotto points out that this will penalise developing countries in which there are few sales but many workers and investments which benefit business owners; Picciotto “Regulating Global Corporate Capitalism”, 237, fn14.

This is best achieved through lifetime averaging, see William Vickrey (1939) “Averaging of Income for Income-Tax Purposes”, Journal of Political Economy 47. Douglas Bamford Rethinking Taxation: an introduction to hourly averaging (London: Searching Finance, 2014).

This is explained in further detail in Bamford “Comprehensive lifetime taxation of international citizens”.

These revenue splits are close to the outcome of the value of k slightly above 1 in the mathematical equations set out below.

With thanks to Katy Long for helping me to express this in mathematical terms.

If a state would impose a negative tax-rate on the individual – i.e. to subsidise them – then this value should presumably be set to zero. Otherwise states would be required to subsidise other states due to their generosity to their own citizens, a feature that would increase the cost of such subsidies and thereby reduce the tendency that states would have to provide earnings subsidies to their low-earning citizens.

I have suggested using percentage values for τi and µ, though it would be possible to express the tax-rates as a decimal for both instead – as long as there is consistency between the two.

An exception would be necessary to take account of extreme cases where taxpayers have to flee persecution, torture, or genocide as a result their identity or political activity. In such cases it would be eminently understandable that the victims would not wish to share their tax revenues with their abusers, and special provisions should be provided for such cases. We can only hope that tragic cases of this nature will abate in the future.

Dietsch and Rixen “Tax Competition and Global Background Justice”, 23.

The argument that people could select states based upon their taxation and service levels was famously presented by Charles M. Tiebout (1956) “A Pure Theory of Local Expenditures”, Journal of Political Economy 64.

I owe this challenge to an anonymous reviewer.