Earlier this week at the colloquium, Wolfgang Schön presented his paper, Taxation and Democracy, offering a broad-ranging inquiry into a set of related topics that include the following:
1) How should we think about “congruence,” or the importance or not of having voters and taxpayers be the same people? Issues raised here include taxing resident and visiting non-citizens on their domestic source income, taxing other inbound income, and the voting and taxation rights of citizens abroad.
2) How is the imposition of tax burdens generally justified? The two alternative mechanisms that the paper discusses are content and consent. Content is top-down, and involves the application of principles to protect taxpayers against unfair or arbitrary measures. The US constitutional bar on bills of attainder would be an example, albeit not one pertaining to taxation in particular. Content-based protections may need to be judicially enforceable in order to operate as significant constraints, although perhaps notions of fairness can function this way if heeded by players in the political process, Consent, by contrast, might emerge from voting, except that if it need not be unanimous then one has the issue of majorities vs. minorities. The former might oppress the latter by reason of outvoting them, or the latter might prevent the former from having their preferences heeded, by reason of disproportionate influence on the political process, or because there are multiple veto points that permit them to triumph via inertia. In the cross-border context, consent can rely on exit, rather than just on voice.
The paper also discusses various international issues that overlap in varying degrees with #1 and/or #2 above, e.g., Dani Rodrik’s statement of a “trilemma” that prevents countries from having all three of (a) national sovereignty, (b) democratic control over policies, and (c) integration into the global economy. This includes concern that tax competition may make entity-level corporate taxation, and/or redistributive taxation, impossible for a given country to pursue unless it is able (perhaps at high cost) to opt out of the global economy.
A large part of the paper’s inspiration is comparativist, and responds to the fact that judicial oversight with regard to taxation is extremely variant as between countries. In the US, constitutional review of federal tax statutes is extremely limited. There is of course whatever remains, as constitutional law, of Eisner v. Macomber, the infamous 1920 case that held it unconstitutional to impose tax on stock dividends since they weren’t a realization. (Not taxing them was in fact substantively unproblematic, but the murky reasoning would have caused huge problems had the Supreme Court subsequently taken it seriously.) More generally, a federal wealth tax might be unconstitutional under current doctrine without apportionment between the states, and there are also, say, the uniformity and origination clauses to consider.
But to show how different it is in a number of EU countries, consider the passthrough rules that Congress enacted in 2017. I have written an article arguing that they are wholly arbitrary and unprincipled. But obviously, being an American, it never occurred to me that this might have any relationship to viewing the passthrough rules as unconstitutional. And of course, in the US legal setting, it has no such possible implication.
But apparently, if Germany had enacted the passthrough rules, a court that agreed with me regarding how arbitrary and unprincipled they are would likely conclude that this made them unconstitutional under German law. That is certainly a bracing new perspective to think about. All the U.S. palaver about reining in the courts, democratic deficit, etcetera would not get in the way, and arguably that the passthrough rules were constitutional would focus on discerning reasonable rationales for them that my article rejects.
While this is certainly the road not taken in the US – nor do I expect it to be taken, nor am I sure how having taken it would affect things (e.g., it depends on what the courts are like in this scenario), it broadens one’s perspective to see how other countries differ. The US is indeed unusual, if not entirely “exceptional” (the UK goes even further) in limiting, as it does, constitutional review of what are claimed to be arbitrary tax provisions, but one enriches one’s intellectual horizons in being aware of a greater range of possibilities.