Comment on What’s at Stake in the Sovereignty Debate?
[Professor Kimberley Brooks is H. Heward Stikeman Chair in the Law of Taxation at McGill University]
Diane Ring’s piece is, to borrow an analogy from Al Purdy, one of Canada’s finest and most popular poets, like a good jazz combo: it has a dominant unifying idea, tells a number of stories simultaneously, keeps a firm hand on the underlying themes, and allows each theme to echo through each story. The dominant focus is the role of sovereignty claims in the area of international tax: this story, particularly as it is told by Ring in this wonderfully rich, well-crafted piece, should be of interest not only to tax scholars, but also to international law scholars, international relations scholars, and scholars interested in international politics.
Part II of the paper tells three stories: the story of the OECD harmful tax competition project, that of tax voting and harmonization in the EU, and finally, the story of the United States’ conflict with the WTO over export sales regimes. As told by Ring, each of these stories makes a valuable contribution to our knowledge about the relationship between tax and sovereignty claims. In her discussion of each of these stories, she provides the reader with a survey history of the issue, draws out how that story serves as a foil for the themes she identifies, and evaluates the way the language of sovereignty has been employed.
The dominant themes that are threaded throughout the piece are explored in Part I. Those themes include the revenue raising and fiscal policy aims of tax systems; the democratic problems of accountability and legitimacy invoked by (overriding) sovereignty; the difficulty of local control where there are multiple sovereigns; and the problems that arise when the stronger, more powerful sovereign player consistently “wins”.
In this comment, though, I’ll just highlight one theme: the function of a tax system and its connection to tax sovereignty. Ring describes two dominant functional reasons for the strong connection between conceptions of sovereignty and tax: revenue concerns and fiscal policy control. The need for tax systems as a means of raising revenue is obvious, although the importance of that function of states and tax systems is often overlooked. Ring centers this role for tax systems, which is important particularly when she turns to look at the attempts at tax harmonization and the various voting requirements in the EU. She also usefully highlights the absence of the focus on the revenue raising role for tax systems in the OECD’s harmful tax competition initiative.
A second function of taxes that Ring reviews is fiscal sovereignty. In other words, taxes provide one instrument for nation-states to influence economic growth, price stability, employment and other economic outcomes in their own territory. Near the end of her discussion of the fiscal sovereignty function of taxes Ring notes that taxes have also long been used in the United States as an instrument to change behavior that is not obviously market or economy related. Here she provides examples including the adoption credit and the exemption of certain prizes and awards.
I would be interested in whether an explicit discussion of these alternative uses of (national) tax systems might add something to Ring’s review of the case studies in Part II. For example, as Ring recognizes, the tax system can be used as an instrument for social spending. Although this is simply another kind of behavior modification function, I would be curious about whether tax expenditures have any traction in the discussions around the WTO and trade incentives that might be provided to domestic producers using the tax system (rather than some more explicit subsidy instrument). Are there future conflicts that might arise if tax expenditures receive international scrutiny? What are the repercussions for our conception of sovereignty and for the power of sovereignty claims?
Another function of the tax system is to redistribution income and, potentially, to reduce income inequality. That redistribution can occur entirely within the nation state, but importantly for Ring’s work, it has also occurred whether intentionally or not, on an international basis. Ring’s analysis of the OECD harmful tax competition initiative reveals some of the arguments at least some commentators and scholars made about the distributional implications of the OECD’s efforts to reduce harmful tax competition. I wonder how international tax scholars might consider these inter-nation distribution issues when we consider questions like tax sovereignty. Does tax sovereignty restrict, for example, our moral obligations to consider redistribution beyond our own national borders?
Finally, tax systems might be used as an instrument for addressing market failures, for example, by serving to alter choices in circumstances where we know from experience individuals tend to by myopic in relation to their own long-term self-interest. So, national tax regimes can be used as a way of providing incentives for residents of that country to save for retirement. This function presumably bolsters Ring’s argument that national tax sovereignty remains an important concept in preserving the state’s ability to achieve national objectives like maximizing the lifetime well being of its residents.
The line from Al Purdy’s poem, House Guest, referred to at the outset of this article is followed by the line “never knowing what came next” (the lines are: maybe hockey was rather like a good jazz combo/never knowing what came next.). Part of what made reading Ring’s piece such a pleasure was that it builds so clearly on and from her earlier work. Over the last three years Ring has been building on her interdisciplinary work at the nexus of international tax policy and international relations theory. This piece reflects her refined thinking about the explanatory power international relations theory can bring to the work that tax scholars do.