In its tax fight with Google, Starbucks, and Amazon, the UK has in essence been demanding that they tax themselves: that they pay more tax than they are legally obligated to because lawmakers, in their hectoring, say that would be the “moral” thing to do.
Now see this discussion by Reuters’ brilliant Chrystia Freeland about the notion of plutocrats self-taxing. She says, quite rightly, that the concept of self-taxation is a challenge to the authority of governments: rich people are saying they can better spend their money to benefit society than society’s representatives in government can.
The irony, then: The UK’s lawmakers are undermining their own authority when they demand that Google et al meet different — perhaps higher — demands than their own laws’. They are abdicating their responsibility to write good tax laws and to negotiate tax treaties with other nations, which are attracting business and thus tax revenue from these multinational companies by offering them better deals than other countries (it’s called competition).
And therein lies another challenge to the authority of national governments: that multinational corporations can indeed play states against each other to get the best deal in minimizing taxes and thus maximizing profits (which, let’s remember, is their fiduciary raison d’etre: maximizing shareholder value). This is especially true in the digital economy, when companies can operate anywhere, even apparently nowhere (across distributed, virtual networks), and also find customers anywhere (that’s the subject of a Guardian story today lamenting the VAT taxes it loses to multinationals selling products directly to consumers, offering lower tax rates and thus better prices … which usually is seen as a good thing for consumers).
Taxation is not a moral question. It is a legal obligation. It is the role of government to write and enforce equitable tax laws for the benefit of society. In the current fight over taxes in the U.S. — which, of course, is what the fiscal cliff is all about — we see various sectors predictably acting in their own self-interest: the middle class wanting to tax the rich, the rich hoping to at least minimize that change. In the end, after much needless pain and struggle, Congress will have to pass a tax law and we will pay our taxes as is our legal duty. I would agree that is a moral duty: to serve and protect the rest of society, to give us services and to help those in need.
But if government makes taxation a matter of moral choice, then what of the law? Where is the certainty that both companies and individuals require to plan their lives if we are held to some unwritten standard? Where is the certainty of government revenue to do its work if taxes are a matter of taxpayers’ judgment?
In an age when borders are increasingly meaningless, when citizens can organize themselves, and when new and stateless armies of hackers bear new but damaging weapons, the authority of governments is being challenged on many fronts. Here governments challenge even their own authority.