subject: Globalization's Affect on Taxation [print this page] Globalization's Affect on Taxation Globalization's Affect on Taxation
Due to globalization, there have been many hardships in trying to keep track of and monitor taxpayers that have underreported their incomes to the United States tax system. These hardships have been caused by the lack of information, available to government, needed to monitor extraterritorial activity. There are two different approaches that will be discussed in the following: (1) the idea of creating a more updated system that will allow for more complete data sharing, or (2) to create less of a need for extraterritorial tax information by reconfiguring national tax systems. With both ideas, there are multiple pros and cons that will be discussed in length throughout the reading. After reading the following argument for both sides, you should be able to formulate your own opinion based on the facts presented to you.
The U.S. government uses an ex ante approach within its boarders which allows for it to regulate what each taxpayer and their employer or means of income reports. This provides the government the ability to "check up on" the taxpayers if they are believed to have underreported or mislead the IRS in what they have reported each year. Since there is no means of enforcing this method across seas, there in lies the problem the government faces when trying to monitor the correct income reporting of taxpayers that engage in "cross-boarder economic activity". Taxpayers involved in overseas income producing activities may be apart of an activity known as "tax flight", which is having off-shore accounts where they keep or invest money that will not be easily found by the government to tax. Although tax flight seems to be a complicated and well thought out diversion, the government also has difficulty monitoring even the more basic overseas activities because of the lack of information it can retrieve.
The key reason for the U.S. needing to create a more updated system of sharing is the advancement in technology that allows for taxpayers to hide their earnings in sophisticated tax shelters overseas. In creating more of an updated system for sharing extraterritorial information between countries, there would be a much needed decrease in the U.S. tax gap of $353 Billion. Although that is an obvious benefit to our economy and country as a whole, some skeptics believe that there would be privacy issues pertaining to the information that would be shared between boarders. On the other hand, having a sophisticated and well developed data market could lead to a more precise and regulated data transfer, which would lead to less privacy issues. Another downfall of the idea of information retrieving of overseas transactions would be the time and money spent in trying to do so. Advocates have said that these resources could be spent in possibly more important matters like the country's homeland security departments or social welfare. Although having a more technologically advanced system, the resources spent trying to develop such a system would still be great. Some may argue the point that the government should stop monitoring and taxing citizens that do not even live in the U.S. anymore but still claim citizenship, and that the U.S. is the only economically developed country to tax individuals based on citizenship. This point is very significant and should be considered when the global taxation topic is discussed.
If the U.S. were to stop taxing based on the citizenship of an individual, it would cut great costs, but would also lose great amounts of revenues received annually. There would also be a larger tax burden on individuals that do not participate in "cross-border economic activity". This burden would be placed upon individuals that have a lower total income, but may have higher incomes when it comes to the total income produced within the borders of the U.S. That does not seem fair because the citizens that are capable of producing income outside of the U.S. will seemingly be receiving a much greater benefit of living in the U.S. than would the average citizen not participating in these overseas transactions. The greatest benefit of the government not monitoring or "chasing" citizens' income around the globe to tax all they can, would be the decrease in the resources spent doing so and the benefit the other areas of government would receive from increased resources given to them instead.
In conclusion, there are two approaches that one could argue for in discussing the answer to the impact of globalization of taxation; one of them being a more sophisticated information exchange system between countries, and the other being a lessened need for the extraterritorial information. The more sophisticated system would result in less time spent searching and piecing together the information needed, and higher revenues from the taxing of citizens incomes. The systems could also bring about issues with complications pertaining to how the costs of creating this system will be paid for in respect to the various countries involved and their economic need for the information. On the other hand the approach of decreasing the need of the extraterritorial information and the reconfiguration of national tax systems. This would free up the resources previous committed, but at the same time put a larger burden on those citizens not involved in overseas transactions. All in all, there are two very realistic approaches that could be decided upon, and that could have very different but greatly altering affects in many ways.
Kirsch, Michael S. "Taxing citizens in a global economy." New York University Law Review May,2007.
Academic Search Complete. West Chester University, PA.
Dean, Steven A. "The incomplete market for global tax information." Boston College Law Review
May,2008. Academic Search Complete. West Chester University, PA.
Wessel, David. "Capital: Globalization Study Moves Past Rhetoric." Wall Street Journal
Jul. 26th, 2007: pg. A.2
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