Republicanism and tax justice

By Professor David Owen, Head of Politics & International Relations

The republican commitment to the view that people can be at liberty only when they are secure – and equally secure – from the exercise of arbitrary power, has significant implications for the ‘domestic’ political economy of states. But it also bears on issues of what we may broadly call ‘transnational’ political economy. That is, that the decisions of actors beyond a democratic state may have important consequences for that state’s establishment, capability and even civic disposition.

For classical republicans, the root of popular sovereignty is not democratic rule but freedom from ‘alien’ rule. This is, indeed, how the republican concept of freedom emerged in ancient Greece – with the political prospect of rule by Persians motivating a focus on the value of being a free people who rule their own city. The most obvious threat here is being subject to the dominion of another people (direct imperial rule) but as republicanism widens its view of domination from the paradigmatic legal form of the master-slave relation, so ‘alien rule’ comes to encompass other possibilities such as political or economic dependency (indirect imperialism). Republicanism, then, is concerned to structure international relations between states – for example, bi- or multi- lateral rules governing trade – in ways that obstruct the formation of relations of domination between states. But, and this will be the focus of this article , it is also possible for a state to adopt policies that undermine the capacity and, even, disposition of other states to engage in republican self-government without exercising political or economic domination over the states in question. This feature of transnational political economy can be illustrated by the example of tax.

Tax as a topic is useful in another respect in that it runs across classical and commercial republicanism presented in Jessica Kimpell’s contribution to this series. While commercial republicans like Adam Smith may have shifted the locus of virtue in certain respects, they were still concerned with citizens exhibiting a commitment to the common good in the form of paying their taxes. Thus, Smith gave the first formulation of principles to guide taxation in The Wealth of Nations:

  1. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. (EQUITY)
  2. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. (CERTAINTY)
  3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. (CONVENIENCE)
  4. Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. (EFFICIENCY)

These remain important principles. For current purposes, however, they help to demonstrate the commercial republicans cannot fully avoid the concern with corruption – the privileging of private interests over the common good – that exercised the classical republican tradition. Republicans of all stripes are well aware that a civic commitment to the common good is a potentially fragile political achievement that requires buttressing through institutional and cultural practices.

Secrecy jurisdictions (aka tax havens) may be characterised as jurisdictions that design regulations for use by people who do not reside within the jurisdiction in the full knowledge that these regulations undermine the capacity of other political authorities to regulate the conduct of their citizenry and support this process through the construction of a veil of secrecy. Essentially, secrecy jurisdictions threaten the republican civic achievement: first, by providing a mechanism through which some citizens can evade taxation and, second, by eroding public confidence in the equity and certainty of tax collection. Smith’s tax principles can be equally applied to corporations operating within the state in respect of the revenues that they raise in virtue of being able to trade in the state in question. If anything, secrecy jurisdictions disable the conditions of good corporate citizenship even more profoundly than they do in the case of natural persons. There is every reason, then, to think that Smith would applaud the Tax Justice Network’s stress on transparency:

“We want companies to be made more open about their financial affairs and to publish data on every country where they operate. We want the finances of wealthy individuals to be visible to their tax authorities, so they pay their fair share of tax. Markets work better, and companies are more accountable, in an environment of transparency. Secrecy hinders criminal investigation and fosters criminality and corruption such as insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the illicit funding of political parties – and much more. We want to expand the commonly accepted definitions of corruption so that they no longer focus only on narrow aspects of the problem such as bribery. We must bring tax, tax avoidance and tax evasion decisively into the corruption debate.”

Such an expansion is just what a republican outlook entails in terms of sustaining an orientation to the common good. This issue of tax and secrecy jurisdictions also matters to republicanism for another reason: the operation of tax havens has the effect of shifting the economic burdens of civic life from capital onto labour and supporting radical inequalities in wealth without the state being able effectively to regulate these economic dimensions of equality. This, in turn, further corrupts politics in the affected states not only by privileging those individuals and corporations with access to extra-territorially held resources but also by skewing the structure of economic relations. 

What should republicans do in the face of this issue? In general, a federation of republican states would outlaw secrecy jurisdictions (and seek to support small island economies that have become dependent on this practice in other ways) but, in the first instance, there are three more immediate steps that can be taken.

The first, which is already occurring with some success, is to put pressure on tax havens to cease their secrecy so that those who utilise them can be made visible to the relevant authorities.

The second is to enact a global Tobin tax on all financial transfers to secrecy jurisdictions.

The third is to adopt a general anti-avoidance measure of the kind formulated by Richard Murphy (and which was tabled in debate on the Finance Bill 2009 by John Pugh MP and Michael Meacher MP):

“1 If when determining the liability of a person to taxation, duty or similar charge due under statute in the UK it shall be established that a step or steps have been included in a transaction giving rise to that liability or to any claim for an allowance, deduction or relief, with such steps having been included for the sole or one of the main purposes of securing a reduction in that liability to taxation, duty or similar charge with no other material economic purpose for the inclusion of such a step being capable of demonstration by the taxpayer, then subject to the sole exception that the step or steps in question are specifically permitted under the term of any legislation promoted for the specific purpose of permitting such use, such step or steps shall be ignored when calculating the resulting liability to taxation, duty or similar charge.

2 In the interpretation of this provision a construction that would promote the purpose or object underlying the provision shall be preferred to a construction that would not promote that purpose or object.”

A republican outlook on political economy provides a clear and distinctive justification for adopting such measures. The tax justice movement often appeals to a basic norm of fairness in advocating tax reform. Republican political economy deepens this appeal by focusing attention on that fact that tax justice is integral to blocking sources of political and economic domination that disfigure and distort the conditions of civic life.

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