New series of papers on why government can and should bring financial services into the tax base

The Victoria University of Wellington (Australia) has a new SSRN issue of interest, featuring a series of papers by Sybrand van Schalkwyk and the ever-prolific John Prebble, all on the topic of consumption tax and financial services. The first of these is the big picture:

"Value Added Tax and Financial Services"  Asia-Pacific Tax Bulletin, Vol. 10, pp. 363-370, 2004 Victoria University of Wellington Legal Research Paper No. 29/2013 Value added tax (VAT) is a relatively modern development. Designers of VAT recognized from the outset that the way in which financial institutions are remunerated creates significant difficulty when the tax is applied to their services. Administrative difficulties relate to imposing invoice-based VAT on service fees charged as part of the margin between buy and sell rates. Theoretical reasons relate to arguments that financial services should not be taxed under a consumption tax because, it is argued, financial services are not consumed in the way in which goods and services are consumed. Because of these difficulties, most jurisdictions have opted to exempt financial services from VAT. However, the commonly accepted reasons to exempt financial services from VAT are not compelling, since financial services are no different in relevant respects from other services. Moreover, there are methods by which financial services could be brought within the VAT base. Furthermore, although exemption is the simplest way for a VAT to treat financial services, it causes significant distortions in the economy.  This paper is of special interest to me because it confirms my own view that societies are increasingly accepting tax systems that intentionally tax the "easy-to-tax" most vigorously, the "hard-to-tax" much less vigorously and more randomly, and the "impossible-to-tax" not at all, and that these categories have been intentionally constructed from regulatory decision-making that renders various activities to a given category in systematic and purposeful ways. There are fundamental justice issues at stake in these regulatory outcomes. If Prebble and van Schalkwyk are correct that exempting financial services from VAT is a policy choice that has been made on the basis of an unexamined theory that these flows are hard or impossible to tax which in turn has been decided because of a failure to institute measures that would make them easy (or at minimum easier) to tax, then the failure to include financial services within existing VAT systems is a grave source of injustice within that tax policy choice (that is, in addition to and apart from the question about whether consumption taxation is itself a violation of justice in the exercise of taxation by states). The papers that follow focus on various ways to increase the coherency of the taxation of financial flows--what I would suggest is an effort to show us that financial flows could in fact be easier to tax, if not "easy-to-tax," given various regulatory reforms: "Defining Interest-Bearing Instruments for the Purposes of Value Added Taxation"   Asia-Pacific Tax Bulletin, Vol. 10, pp. 418-426, 2004Victoria University of Wellington Legal Research Paper No. 30/2013  This is the second of a series of four articles on the taxation of financial services under a value added tax. The first article considered whether, from a theoretical viewpoint, financial services should be included under a value added tax. It concluded that the arguments in favour of treating financial services in the same manner as any other service outweighed the arguments against doing so. This second article considers the definition of interest bearing financial instruments in some detail. It also considers the kinds of activities that qualify as financial services in relation to the instruments. The definition of financial services is important where a different type of treatment is applied to financial services. If financial services were taxed like any other service, then no definition would be needed. However, where, as in New Zealand, supplies of financial services can be exempted, the definition of financial services becomes very important. Alternatively, if some financial services are to be zero rated or taxed but not others, then it is necessary to have a global definition of financial services followed by individual definitions of the particular kinds of service that are to be brought within the tax base one way or the other. This article begins by considering interest-bearing instruments.  "Imposing Value Added Tax on Interest-Bearing Instruments and Life Insurance"  Asia-Pacific Tax Bulletin, Vol. 10, pp. 471-468, 2004 Victoria University of Wellington Legal Research Paper No. 31/2013  Exemption of financial services from Value Added Tax (VAT) is commonly accepted as being an anomaly in the New Zealand goods and services tax legislation. While exempting financial services from VAT is attractive to the legislature because it is a simple way of addressing the difficulties of applying VAT to financial services, it causes significant distortions, for instance tax cascading, which in turn causes price distortions. The application of VAT to interest-bearing financial instruments and life insurance is complicated by the way in which financial intermediaries charge for these services. The first part of this article investigates how interest-bearing instruments can be taxed under VAT, and the second part how life insurance can be taxed under VAT. There are several options for the treatment of interest-bearing instruments. They can be exempted, zero-rated, or included in the tax base. In this last category, there are three possible methods of including interest-bearing instruments: the invoice, cash flow, and truncated tax flow systems. The last is recommended because policy makers have come to realize that the cash flow system cannot be applied without significant modification.  "Imposing Value Added Tax on the Exchange of Currency"  Asia-Pacific Tax Bulletin, Vol. 10, pp. 469-483, 2004 Victoria University of Wellington Legal Research Paper No. 32/2013  Exemption of financial services from Value Added Tax (VAT) is commonly accepted as being an anomaly in the New Zealand goods and services tax legislation. While exempting financial services from VAT is attractive to the legislature because it is a simple way of addressing the difficulties of applying VAT to financial services, it causes significant distortions, such as tax cascading, which in turn causes price distortions. The application of VAT to services that bring about the exchange of currency is one instance where financial services could be included in the VAT base. Services bringing about the exchange of currency are a species of financial service, but are inherently different from other financial services since they are relatively simpler than other financial services. Reasons advanced for exempting financial services in general do not necessarily apply to services bringing about the exchange of currency. Bravo to the authors--this represents a lot of work and adds much to the discussion of how economically-integrated yet politically independent nations can approach the subject of taxation from the perspective that justice matters in policy decisions.

Workshop on social economic rights in practice-Coventry

The Human Rights Centre in Practice and the Institute of Advanced Study at the University of Warwick are holding a workshop tomorrow on Strategies for realising social economic rights in practice: Multi-disciplinary experiences from early career researchers.  The program asks:

1. Should social economic rights be considered human rights at all?
2. How helpful is the international legal framework in enabling the achievement of these rights?
3. How do we measure social economic rights in practice?
4. What lessons can we learn from practitioners in our pursuit of achieving social economic rights?

Interesting.  Hope to see some of the papers as they emerge from abstract to publication.

Gender pay gap begins one year out of college

From Salon:

A report from the American Association of University Women (AAUW) flagged by Raw Story found that a gender earning gap usually occurs just one year after graduates leave college, with men making an average of $42,918 one year after graduation while women make an average of $35,296. The report, “Graduating to a pay gap” notes: 

“Graduating to a pay gap” finds that women working full time already earn less than their male counterparts do just one year after college graduation. Taking a closer look at the data, we find that women’s choices—college major, occupation, hours at work—do account for part of the pay gap. But about one-third of the gap remains unexplained, suggesting that bias and discrimination are still problems in the workplace.

More at the link.

Next Monday: Art Cockfield on FATCA

Professor Arthur Cockfield will be at McGill next Monday, where he will present his paper on FATCA as part of our Tax Policy Colloquium Series.  It promises to be a lively discussion, as the issues here are many and difficult.  Here is the title and abstract:

The Limits of the International Tax Regime as a Commitment Projector

The paper examines how transaction cost approaches (as developed by North and Williamson) can inform international tax law and policy discussions.  The international tax regime evolved institutions and institutional arrangements to address transaction costs such as the risk that two countries might doubly tax the same cross-border business profits.  It mainly sought to reduce this risk by serving as a ‘commitment projector’ that enables governments to make credible political promises to taxpayers, other members of the public and other governments that they will not overtax these cross-border profits.  As a result of these political commitments, taxpayers do not need to incur transaction costs they would otherwise have to sustain to identify and protect their global tax liabilities. In other areas, however, the international tax regime does not facilitate credible commitments.   The talk will focus on one such challenge to the regime, namely the 2010 U.S. proposal to create a global tax reporting system via the Foreign Account Tax Compliance Act or FATCA.  By eschewing traditional bilateral and multilateral cooperation when it introduced FATCA, the United States subverted its ability to offer credible commitments and raised transaction costs for economic participants.  The talk will review the impact of FATCA on U.S. expatriates (and others) in Canada as well as potential options available to the Canadian government to resist FATCA.

Anyone following FATCA in Canada knows that Prof. Cockfield has been tough on the regime, and I look forward to hearing him flesh out his position in person.  The Colloquium is open to all.  If you will be in Montreal on Monday, I invite you to join us at 11:35am at the McGill Law Faculty, Chancellor Day Hall Room 202, 3644 Peel Street.  

Tax policy report by UK anti-tax group

Whenever a "report" on tax policy begins with artwork depicting oppressed people in chains, I brace myself for a now familiar chorus about the terrible impact of tax on jobs, growth, productivity, freedom, beauty, and truth.  The UK Taxpayers Alliance "Single Income Tax: Final Report of the 2020 Tax Commission" fits the bill.  Richard Murphy summarizes its overall tone and describes it as a horrid world view.  At over 400 pages long, it's not a light read.  I've only skimmed it but note that the report very quickly dismisses the important work by Piketty & Saez as weak empirically (p. 246), yet blandly summarizes US Congressman Paul Ryan's outrageously lopsided budget plan with no critique whatsoever (p. 390-91).  That's telling.  The foreword says:

"The level of economic and policy debate has long been poor in the UK. There is very little awareness of the oodles of academic research on how high marginal tax rates or punitive income or capital taxes reduce growth and jobs."

Aside from using the term "oodles" in a purportedly serious study, that's an aggressive opener that lets us see the framing that will go to work in this report.  The author complains that "In the very rare instances when they are mentioned, respectable and important studies are dismissed out of hand or not properly understood; the only “moral” arguments ever referred to are those that advocate the state seizing ever greater proportions of individuals’ incomes."  This leaves us in no doubt of the direction and makes the easy dismissal of research by people like Piketty & Saez even more bothersome.

CNN transcript collection

13 years of transcripts, available for download:

For over a decade, CNN (Cable News Network) has been providing transcripts of shows, events and newscasts from its broadcasts. The archive has been maintained and the text transcripts have been dependably available at transcripts.cnn.com. This is a just-in-case grab of the years of transcripts for later study and historical research.