Wednesday, December 6, 2017
Mark P. Gergen (UC-Berkeley) presents A Securities Tax and the Problems of Taxing Global Capital at Pennsylvania today as part of its Tax Policy Workshop Series:
An earlier paper by the same author [How to Tax Capital, 70 Tax L. Rev. 1 (2016)] proposed a new approach to taxing capital that is owned by U.S. households and nonprofits. The cornerstone of the new approach would be a flat annual tax on the market value of U.S. publicly traded securities. A security issuer would remit the tax based on the market value of its securities and would receive a credit for U.S. publicly traded securities it holds. Income producing capital that is not subject to the securities tax, such as an interest in a closely held business or an interest in a private equity fund, would be covered by a complementary tax that would be at the same rate as the securities tax. The securities tax and the complementary tax are intended to replace the entire existing patchwork system for taxing capital income in the U.S., and would eliminate many of the distortionary features of the existing U.S. system, including the realization requirement, the distinction between debt and equity, and the double-taxation of corporate income.
The present paper examines how the securities tax would function in a global context. If other nations do not change their approaches to taxing cross border investment, then it would be necessary to modify the securities tax in several major respects to avoid dealing what could be a killing blow to the existing international tax system, and to comply with the existing international norm on the taxation of passive investment income. The modifications create complexity and new distortions but on the whole the modified securities tax would be no worse, and may be modestly superior, to the status quo with respect to taxing cross border investment, both nationally and globally. Perhaps the most significant benefits with respect to the taxation of cross border investment is global and would be realized by other nations because the securities tax and complementary tax, as withholding taxes, lend themselves to being implemented in a way that would make the U.S. unattractive as a tax haven for foreign wealth owners, without the U.S. having to join in the Common Reporting Standard, and with the U.S. remaining a haven for hidden wealth. There might be some benefit to the U.S. in this policy as well for it would make it extremely difficult for a U.S. wealth owner to avoid U.S. taxes by “round tripping” an investment in the U.S. through a foreign tax haven. Section 2 addresses the taxation of Multinational corporations. Section 3 addresses cross-border portfolio investment. Section 4 addresses the problem of determining the tax home of a MNC and the definition of a U.S. security for purposes of the securities tax. Section 5 addresses the problem of global tax havens and hidden wealth.