© Springer International Publishing Switzerland 2015Helmut P. Gaisbauer, Gottfried Schweiger and Clemens Sedmak (eds.)Philosophical Explorations of Justice and TaxationIus Gentium: Comparative Perspectives on Law and Justice4010.1007/978-3-319-13458-1_12
12. What Burden Should Fiscal Policy Bear in Fighting Global Injustice?
Faculty of Arts, University of Auckland, SYMONDS ST 14, 1010 Auckland, New Zealand
In this contribution I examine how improvements in our fiscal arrangements could be an important vehicle for realizing key aspects of global justice. I begin by outlining some of the important principles that orient my account of global justice (and, moreover, should be part of any plausible account of what we should aim at in pursuing global justice). Improved institutional quality at both the state and global level has a crucial role to play in achieving global justice goals. In Sect. 2 I outline some of the challenges that must be met to deliver the necessary institutional quality in the area of taxation. Effective and legitimate states, tax morale, and an appropriate fiscal contract are all highly important for creating and sustaining an environment conducive to beneficial development, as I explain. I also sketch some of the particular obstacles for developing countries in trying to achieve the right conditions, including both domestic and international challenges that must be confronted. Section 3 covers some solutions to the problems identified and the important role developed countries can play in addressing crucial problems. For instance, as we come to appreciate, in a context of globalization, robust and equitable fiscal policies require transnational cooperation. Many concerns, such as clamping down on tax evasion and harmonizing corporate tax rates can only effectively be tackled at the global level. As I also discuss, feasible arrangements for tackling such issues are available, as are mechanisms for collecting and disbursing funds in ways that promote accountability and compliance. I outline a range of additional ways in which we can usefully discharge some of our global justice duties by assisting with several tax problems highlighted in this contribution. In Sect. 4 I discuss some positive proposals for levying global taxes that could assist enormously with realizing global justice. Here we discuss taxes that could help create conditions beneficial to development and could provide an important source of funding for core global public goods. Currency conversion taxes seem especially worthy of serious consideration, as do carbon taxes and expansions of the air-ticket tax. Section 5 briefly reviews some of the features that make the global taxes discussed both normatively desirable and politically feasible.
12.1 What does Global Justice Require?
My starting point is the insight, now well-established in political philosophy, that the fundamental institutions that we collectively uphold structure and importantly influence how our lives will go. Rawls makes this a focal point of his theory. The basic structure of society—which includes all the main political, economic, legal and social institutions—is the core focus for theorising about justice because its effects are pervasive, profound, and present from birth. Whether or not we endorse Rawls’s particular claim about the impact of institutions, we must at least recognize a version of it: the institutions that govern our lives—whether at state-level or international ones—have an important role to play in structuring our life prospects and so it is important that we ensure that these aim at approximating just ones.
My next presumptively uncontroversial point is to acknowledge the importance of the “Moral Equality Imperative”—we all must acknowledge the moral equality of all human beings. No matter where people are located on the globe they deserve to be treated as human beings that have equal value to other human beings, ceteris paribus. All human beings’ needs and interests deserve equal respect and consideration, ceteris paribus.
What should commitment to the Moral Equality Imperative mean with regard to how we ought to structure the institutions we collectively uphold? In my view, it minimally entails that we should ensure everyone is well positioned to enjoy the prospect of a decent life and I elaborate on this via four central components (Brock 2009). First, one should be enabled to meet one’s basic needs. Second, one must have adequate protection for one’s basic liberties. Third, fair terms of cooperation must govern one’s collective endeavours. And fourth, one must have background conditions (especially social and political arrangements) that support these core ingredients of a decent life. There are various ways to make the point that these four components are important ingredients for a decent life.1 Like human rights approaches, we might start with the individual human person and consider what she needs to live a life of dignity, fleshing out opportunities, protections, resources, and the like, that are central for such a life, taking account of a wide sweep of variation in human living arrangements. That will get us some distance, but we quickly realise that on such reflection, how that person stands in relation to others is also a key part of enjoying a life of dignity. Is she subject to domination, exploitation, or oppression? Must she endure highly coercive terms of cooperation? If her relationships with others are characterized by marked inequality, this may interfere with the ideal of a life worthy of human dignity. And so we arrive at the necessity of including relational components in our account of what global justice requires such as fair terms of co-operation. The details of my account of global justice need not concern us for the purposes of this contribution.2 For our purposes, we need only note a few key points. First, global justice requires that we must be concerned with everyone’s prospects for a decent life in designing just institutions. Second, we all have duties to one another to ensure that we are adequately positioned to enjoy prospects for a decent life.3 Governments can frequently act as efficient co-ordinators and dischargers of these responsibilities. As this view suggests, governments then have an important role to play in discharging global justice duties.
Let us consider next the relevance of states in my account of global justice. In my view, rather than having little importance (as some cosmopolitan global justice theorists maintain), states are highly relevant for several reasons.
First, states matter to people. People are, for the most part, attached to their fellow citizens and current political arrangements, and care greatly about their state’s standing and achievements in the world. Of course, this attachment is socially constructed and is subject to modification, though the mechanisms for modification require careful treatment including managing rather than suppressing identities, at least over a reasonably long time frame (Brock and Atkinson 2008). At any rate, there are good reasons to make space in an account of global justice for defensible forms of such attachments, citizens’ commitments to states and, indeed, flourishing forms of civic nationalism, that enhance rather than undermine support for key elements of global justice. States are likely to be a core feature of our world order for many years to come and so to ignore the role they can and should play in transitioning to a more just world is not only myopic but a missed opportunity to further key global justice goals. Even in an ideal world, however, there are reasons to think states might be a robust part of the global institutional architecture and that a world state would be less desirable. The obvious concerns surround the concentration of power and its possible abuse. Multiple centres of power might provide better protection from potential abuse and global institutional derailment.
Second, there are many state-level institutions, policies and practices that should be of concern in ensuring the Moral Equality Imperative is implemented satisfactorily in state-wide institutions. State-level institutions are still highly significant in promoting or retarding human beings’ prospects for flourishing lives and constitute an important site of co-operation that ought to aspire to fairness.
Third, in the world we live in, much of the responsibility for ensuring core ingredients necessary for a good life is devolved to states. They are an important vehicle through which many key ingredients of global justice are secured and protected.
Fourth, as an empirical matter, in our current world effective states are undeniably important for beneficial development. One of the largest scale global injustices we currently face is the massive extent of poverty. Two billion people currently live below the $ 2 (US) per day poverty line (IDS 2012). Many of these poor people live in developing countries (or countries that are classified as low-income or middle-income ones) and those countries especially need effective states that can actively manage the development process and economic growth in beneficial ways. For instance, Duncan Green remarks:
Why focus on effective states? Because history shows that no country has prospered without a state that can actively manage the development process. The extraordinary transformations of countries such as South Korea, Taiwan, Botswana, or Mauritius have been led by states that ensure health and education for all, and which actively promote and manage the process of economic growth. After 20 years of erosion by deregulation, ‘structural adjustment programs’, and international trade and aid agreements, many states are weak or absent. But there are no shortcuts, and neither aid nor NGOs can take its place; the road to development lies through the state. (Green 2008, p. 12)
Effective states are enormously important to beneficial development and considerably assist with it. There are many reasons why states that are effective are indispensable to beneficial development. States, after all, are necessary to underwrite or ensure the availability of key goods including healthcare, education, water, sanitation, infrastructure, security, the rule of law, and at least a minimum level of social and economic stability, all of which are necessary precursors in building a dynamic economy capable of beneficial growth. Furthermore, states are in a unique position to regulate and develop the economy in beneficial ways. Taxation has a tremendously important role to play in creating and sustaining effective and legitimate states with robust domestic institutions and we discuss this issue in more detail in the next section.
12.2 The Important Role of Taxation in Creating and Sustaining Effective States and Robust Domestic Institutions
Edmund Burke, an eighteenth-century philosopher, once remarked that “Revenue is the chief preoccupation of the state. Nay more it is the state” (Dietz 1964, p. 213). Whether or not one endorses Burke’s view, taxation is undeniably very important to the state: collecting taxes is typically necessary for the state to function effectively. In addition, how taxes are collected and disbursed is important to state legitimacy and effective state building.
Constructing and maintaining robust taxation systems can be challenging for even the strongest states. Taxation systems should incorporate several desiderata that are sometimes in tension with each other. Ideally, taxation systems should be equitable, efficient, and effective. Equitable tax systems treat taxpayers fairly and promote social cohesion. Effective systems are ones which are administratively capable of delivering desirable policy objectives at the least compliance and administrative cost. Efficient systems raise revenue at least cost and without creating undesirable disincentives, such as to work or invest.
Constructing efficient, effective and equitable tax systems can play an enormously valuable role in creating the ingredients for effective states, helping to sustain the legitimacy of the state and its accountability. Tax collection can strengthen the relationship between states and their citizens, empowering citizens to demand accountability from their states and therefore helping states to be more accountable to citizens. Moreover, a strong tax system is central to a state’s financial independence. Ensuring appropriate revenue is available also helps sustain appropriate levels of state sovereignty.
Sustaining efficient, effective and equitable taxation systems is challenging for all states at all levels of development. Developing countries have additional challenges to meet including the following six.
Tax administration is often very weak with the result that much taxation fails to be collected.
Large informal sectors can seriously restrict developing countries’ abilities to tax all citizens fairly. Many developing countries have large numbers of workers who are employed in the informal economy. When workers are not formally employed, it is difficult to track their wages, let alone collect any taxation from that income.
Tax morale—citizens’ willingness to pay taxes and comply with tax laws—is a key factor that needs to be understood. Perceived unfairness in the collection or disbursement of taxation revenue can significantly undermine such morale. When citizens do not feel that they are getting value for their taxes, they will be less willing to contribute the taxes that are owed. So, for instance, when core goods fail to be provided, when there is a perception that taxes collected will be wasted, squandered, embezzled or otherwise not spent on their legitimate purposes, citizens will again be less likely to want to contribute their legally required taxes. Citizens will generally be unwilling to pay taxes unless they feel that the taxes themselves are legitimate, that services will actually be delivered, and that others are also paying their fair share. When there is a sense of uneven contribution and enforcement this will also undermine tax morale.
Related to the previous point, the relationship between the state and citizens concerning tax matters is often described in terms of a ‘fiscal social contract’. This contract seems to involve an implicit agreement between citizens and the state that taxes can reasonably be expected in return for good governance. The robustness of the contract can reflect how well governments are performing in delivering good governance.
Positive feedback loops are created when there is high tax morale (citizens perceive that they are getting fair returns on their tax contributions and there is an even-handed approach to taxation policy and collection) and states are therefore able to discharge their functions effectively. Moreover, negative feedback loops can gain traction when the reverse is the case: low tax morale can lead to insufficient funds for executing core state functions effectively which can further undermine tax morale. Problems with rampant tax escape also damage the social contract in multiple ways, as I discuss in 5) and 6) below.
In competing to attract foreign direct investment, states feel pressured to create a favourable tax environment, such as by implementing low (or no) tax rates, “tax holidays”, and exemptions. Declaring one’s state a tax haven appears to enable more revenue to flow into the state, however, tax havens create a variety of problems. They support illegal activity including bribery, organized crime, and tax evasion. The World Bank estimates the annual flow of illicit money across borders to be $ 1–1.6 trillion (Baker 2005). Tax havens destabilize the international economy (Keeler 2009). However, most importantly, they divert revenue from governments and facilitate massive tax escape. Developing countries are losing an estimated $ 385 billion per year because of tax evasion and avoidance (Cobham 2005). Tax havens can provide important channels for tax evasion. For instance, economic activity is often declared as occurring in places where taxes are low, rather than accurately recorded where it actually takes place. “Transfer pricing” is a recognized accounting term for sales and purchases that occur within the same company or group of companies. For example, it is not uncommon for a company to produce goods in one country, “sell” them to a subsidiary in a tax haven at cost price, then “sell” them again at an inflated price to a third subsidiary. The end result is that when the product is finally sold to a consumer, it misleadingly registers as a tax loss. These transactions create significant opportunities to disguise profits and instead report losses that attract no fiscal obligations. About half of all world trade passes through tax haven jurisdictions, as profits are shifted to places where tax can be avoided (Christensen et al. 2005).
Tax evasion and avoidance constitutes a grave impediment to development and democracy, especially in developing countries (Oxfam GB 2009). Because large corporations and wealthy individuals are effectively escaping taxation, the tax burden is frequently shifted onto ordinary citizens and smaller businesses. Governments often thereby collect much-reduced sums insufficient to achieve minimal goals of social justice, such as providing decent public goods and services, which can also have a dramatic effect on developing or maintaining robust democracies (Vigueras 2005).
In many cases, the revenue that poor, developing countries could obtain from resource sales would be more than enough to finance what is needed for the state to be effective, that is to say, if the revenue were actually received and appropriately disbursed. Assisting countries in receiving such revenue seems especially important and in this respect developed country multinationals and governments have been especially negligent in not demanding more transparency and accountability with respect to resource sales. Non-transparent processes for resource sales have enabled massive corruption and theft of resources, the proceeds of which could have been used to build effective states.
The problem of corruption in the sale of resources is large. McFerson (2009) makes the following estimates of losses from corruption in Africa: $ 1 billion a year has been stolen from the Angolan people since 1996; one third of the Democratic Republic of Congo’s oil revenue is not shown in the country’s budget; and despite $ 7 billion in annual oil profits, 60 % of Guinea’s population live on less than $ 1 per day. Corrupt resource sales harm more than just the economy. For instance, corruption is strongly linked to severe restrictions of political and civil rights (McFerson 2009). Governments (and individuals within governments) who stand to gain from corrupt deals are apt to take extreme measures to retain their position.