Unbundled Tax Sovereignty: Refining the Challenges

Abstract

Tax sovereignty under globalization is at risk of unraveling. This is not only–as is often argued—because international organizations or other states exert external power on sovereign states. It is also the very process of fragmentation of state sovereignty that undermines its own foundations. The main claim of this lecture is that globalization is increasingly altering the interaction between states and their constituents. The choices and flexibility it offers (some) taxpayers threaten to transform taxpayers from equal members of a political community entitled to a bundle of public goods and services into consumers of public goods and services offered à-la-carte. Such a transition, this lecture contends, undermines the basis for states’ sovereignty. It is therefore argued that, in order to ensure the continued legitimacy of their sovereignty, states should reconfigure their social contracts with their constituents.

The proposed new social contract should agree on a core ‘deal’ of bundled goods and services available to members only. The preferred bundle would allow current and future members—both the mobile and the immobile—to lead the kind of lives they would each settle on behind the veil of ignorance. Equitable taxes would be part of this core ‘deal’. As such, taxes would be based on membership rather than on the benefit derived from the use of specific public goods. This new social contract would help strike a balance between the coercive nature of the state and taxpayers’ freedom to choose to associate some aspects of their lives with other jurisdictions—between the conflicting, yet essential, goals of stability and freedom which they need in order to thrive.

Keywords: Tax, International Tax, Residency, Tax Policy