Weekly SSRN Tax Article Review And Roundup: Saito Reviews Reconsidering Citizenship Taxation By Dagan & Mason

This week, Blaine Saito (Ohio State; Google Scholar) reviews Tsilly Dagan (Oxford; Google Scholar) & Ruth Mason (Virginia; Google Scholar), Reconsidering Citizenship Taxation, in Taxing People: The Next One Hundred Years (Tsilly Dagan & Ruth Mason, eds. Cambridge University Press 2025). 

There is truth to the hackneyed phrase that we live in a more globalized world. Tax discussions in recent years has focused on the mobility of capital, which in turn led toward efforts to protect the tax base from multinational entities’ profit shifting techniques. The common view was that people and labor were stickier. But the results of the pandemic along with various changes in laws that allowed digital nomads and golden pathways to citizenship for wealthy people has allowed a growing group of people to break loose from the traditional bonds of community of the nation-state. In their piece Reconsidering Citizenship Taxation, which will be a chapter in their upcoming anthology Taxing People: The Next One Hundred Years, Tsilly Dagan and Ruth Mason talk about recent rumblings to use citizenship as the basis for taxation. 

While there are positives toward having citizenship as a basis for taxation, it alone is not sufficient to show ties to the community. Furthermore, there are important practical problems to citizenship taxation.

Dagan and Mason start with the idea that taxation of people stems from the social contract. Historically, mapping who a state could tax was relatively easy, citizenship and residence often mapped onto the same person, and thus one could easily tell who benefitted from the state’s provision of services. But as states competed for wealthy investors and remote work became a viable option, these categories weakened. As these moves became more common, the social contract unraveled. This creates a problem. People moving out and not getting taxed not only hampers the state’s ability to redistribute and provide public goods and services, but it also raises equity issues, as not everyone has the equal ability to move.

To address the problems of mobility Dagan and Mason assess various options. Many of them, like taxing residents on a worldwide basis and so-called “brain drain” taxes often fail, because nations often have greater economic and political benefits from not implementing such taxes. Citizenship taxation is another response, because people are often loath to give up citizenship benefit of citizenship in certain countries. That in turn should help prevent people from taking advantage of tax competition.

But citizenship taxation also has problems. Citizenship taxation is not fundamentally unfair. At a high level there is some social obligations of citizens, regardless of where they are, to pay some taxes to help fund redistribution. But trying to implement theory is a lot more complicated. Who exactly is a member of the national community is a complicated question. When one examines the issue closely, neither residence nor citizenship is a perfect fit.

Instead, the authors call on states to use a bit of both citizenship and residence together in imposing worldwide taxation on people. Dagan and Mason call for fine-tuned rules rather than broad binaries to address the issue of mobile people.

Furthermore, pure citizenship regimes suffer from enforcement problems. The U.S. is an outlier with worldwide citizenship taxation. But the U.S., which has a great deal of state capacity in the tax area, has struggled for many years to ensure compliance, and it does not even know how many people are noncompliant. Additionally, U.S. citizens living abroad are also burdened administratively.

The problems are worse for poorer nations. Few of them have the capacity that the U.S. has, making enforcement even more elusive. Additionally, unlike the U.S., which is a large economic power, many of these states may not have the ability to impose rules unilaterally to aid in this endeavor. Finally, the attractiveness of citizenship is not equal. While many of the advanced economies of the E.U. and the U.S. are quite attractive, smaller developing nations are less attractive and could see tax base erosion.

Finally, while multilateralism could help stanch some of these problems there are still issues that can arise. First, multilateralism requires reaching an agreement, which is quite difficult. Additionally, going back to the mobility of capital, the means to address base erosion here, through matters like the OECD inclusive framework have still tilted the game to wealthier jurisdictions. In trying to work toward a multilateral enforcement mechanism for worldwide citizenship taxation, wealthier and more powerful nation-states are more likely to have their interests met, which raises key global justice concerns.

What Dagan and Mason show is that thinking about how we tax people is itself a complex endeavor. Some of the simple categories that worked well in the 20^th Century no longer hold. Indeed, we must look both theoretically and practically at the ideas undergirding the social contract and the mechanisms to implement that understanding to get address the issues of ever more mobile people and capital. We also need to start thinking more broadly about equity in a global context. It is complex to balance intrastate equity with interstate equity. But fundamentally, the piece raises the concerns that highly skilled and wealthy people may continue to escape taxation and duties that other residents and citizens have to the detriment of those people and states that are poorer. Thus, while somewhat of a critique of citizenship taxation, the chapter itself pushes forces us to reckon with the issues of inclusion in a community and what is fairness.

Additionally, the chapter shows that there are probably not easy solutions to this matter. Indeed, it is but one chapter of an exciting book that Dagan and Mason are editing addresses the future of taxing people in our growing international world. But the chapter forces us to think that what needs to happen is to put multiple tools on the table. And no one paradigm too will be perfect. Instead, we will probably need to think in more nuanced terms about who should be subject to tax in what jurisdiction. That may be hard, but it is both necessary and right.

Here’s the rest of this week’s SSRN Tax Roundup:

• Reuven S. Avi-Yonah (Michigan), Con Congress Give Unaffected Taxpayers Standing?, 116 Tax Notes Int’l 833 (2024) (date posted: Dec. 5, 2024).
• Reuven S. Avi-Yonah (Michigan), Can the Economic Substance Doctrine be Revived, 116 Tax Notes Int’l 663 (2024) (date posted: Dec. 2, 2024).
• Constantinos Challoumis (Nat’l & Kapodistrian Univ. Athens) & Alexios Constantinou (Phillips), Combating Tax Avoidance: EU and Greek Measures for Fair Corporate Taxation, 2024 Baltic J.L. and Soc. Sci. ___ (2024) (date posted: Dec. 5, 2024).
• Craig Ellife (Auckland), The Quiet Evolution in International Tax: Domestic Law and Double Taxation (date posted: Dec. 2, 2024).
• Adam S. Hofri-Winogradow (UBC) & Mark J. Bennet (Victoria Univ. of Wellington), Looking through Trusts, 61 Osgoode Hall L.J. ___ (forthcoming 205) (date posted: Dec. 2, 2024).
• Jeffrey M. Kadet (Washington), The Need for Income Sourcing Changes, 184 Tax Notes Fed. 1861 (2024) (date posted: Dec. 2, 2024).
• Richard Krever (Western Australia), Does Market Value Depend on Who’s in the Market?, 116 Tax Notes Int’l 1177 (2024) (date posted: Dec. 5, 2024).
• Ruth Mason (Virginia) & Stephen Daly (King’s College), Rotten to the Core: The EU’s Court of Justice Decision in Apple, 116 Tax Notes Int’l 987 (2024) (date posted: Nov. 22, 2024).
• Doron Narotzki (Akron) & Yariv Brauner (Florida), A Roadmap to NIL and Taxation (date posted: Dec. 5, 2024).
• John A. Townsend (Houston), The Tax Contribution to Deference and APA § 706 (date posted: Nov. 23, 2024).