Some considerations

1. INTRODUCTION. The analysis on the causes of the global economic crisis  that conventionally place its origins in 2007, often characterize it as a financial crisis and establish its starting point (perhaps due to the human need to identify historical facts with accuracy) in the “subprime”  American mortgage crisis.

From a financial perspective it makes sense to consider in general that, on one hand, the crisis has not excessively affected the so-called emerging economies in which the financial side did not exceed the real economy in quantity or in relevance (it has been said that only with derivatives the global GDP was multiplied by 600) and that the solution to the crisis should be based on a general reduction of debt, both private and public.

However, when trying to study the origins of the economic crisis we are suffering, which is without doubt, the most significant since the Depression of 1929 (Some doctrine names it as Depression 2.0), it is expected that within a few years, disagreements about the its causes will be as significant as those that still, in 2013, are developed as to the origin of the events of the Great Depression in 1929.

2. THE WORLD TAX SYSTEM.

All these reflections seem to consider that the tax system would not have had any effect, for better or for worse, in the development of the crisis, as if the structure, composition and distribution of tax burdens in different world economies had no effect on the economic crisis.

However, when considering the “solution” to the economic crisis, it is, on one hand, as if taxes were an important part of the answer, especially in those neo-Keynesian proposals that had their moment of glory in the 2008-2009 economic recovery packages and where tax cuts and expansion of tax expenditures (“tax expenditures” in international terminology) became the protagonists.

Even now, when the leadership of the recovery policies focuses, in those States which need them (mainly Europeans, Japan and North America, if we accept the  “decoupling” thesis in vogue in some Latin American institutions) in hard adjustment policies through deficits reductions and decreasing public debt (German position, prevalent in most of the European Union Member States) or in monetary expansion (preferred in USA, named as  “quantitative easing “), actions through modifications of  the tax systems which mainly increases revenue through increasing VAT rates, introducing new taxes, strengthening the fight against tax fraud, etc., are always present;  therefore, taxation does indeed matter in order to “come out” of the crisis.

However, we believe that the global tax system does have something to say about the origins of the systemic crisis and we should, logically, worrying about re-creating or simply establishing some form of tax model (and management thereof) that would minimize the recurrent crisis possibilities in the world economy with damaging consequences on, for instance, employment.

Some might deny the main issue, i.e., the existence of such “global tax system”, claiming that the national state sovereignty remains the fundamental property of taxation and, therefore, there are no universal trends in taxation, since every nation, country or territory sets the tax scheme that most suits their interests or, rather, the interests of the groups in power.

And certainly, we can not agree more with this approach and it is precisely the absence of such a “global tax system”, in the sense of an articulated range of taxes and their implementation, regulated by common tax principles and at the service of certain goals, which is the first acknowledgment that the tax system, or rather, its absence, is one of the causes of the international systemic crisis.

In a context of increasing economic, social and cultural globalization, where tax bases and even people (qualified or not) move freely in search of resources and opportunities,  the fact that there is no harmony between national taxes, but a unbridled competition, where “free riders” (tax havens and low tax regimes) appear to take advantage of the free movement of production factors and from this harmful tax competition, to divert at no cost productive resources and human capital from other States, via tax reduction, which forces, in turn, the other nation states to decrease their collections, in a “race to the bottom”.

At the end, there is a set of uncoordinated extremely complex national tax systems, with low revenue collection capacity, lack of flexibility, high indirect costs for citizens and businesses, which increase the tax burden on certain activities, allowing the flight of mobile factors.

Such international competition also involves a growing instability that has heightened market instability and volatility, which is without doubt one of the phenomena behind the international financial crisis.

Similarly, because financial capital was the first to become international and in which financial engineering has most developed , international expansion (with its concentration in some markets, such as the City of London) and the ubiquitous use of ICT (information and communication technologies), the taxation of operations, institutions and financial instruments has not been able to become “internationalized”, so this has facilitated financial engineering and arbitration and de-taxation phenomenon through complex financial transactions (usually with the use of hybrid and compound financial instruments) which, in turn, has contributed to the development of financial products without any economic substance, except,  the tax component, complex and uncontrolled, as direct causes for the “financial bubble”.

As if this was not enough, the “free riders” have not only damaged the ability of nation states to generate a sufficient and autonomous taxation that would automatically respond to the crisis, but have caused real worldwide level “negative external economies” , serving limited mafias and tiny groups that they have failed (or didn’t want) to tackle.

Some label this phenomenon as the existence of “black holes” in the global economy, since international tax evasion is linked to criminal phenomena, which paradigmatic example is money laundering.

In another aspect, the tax system has facilitated private debt, because it has been unable, on one hand, to alter the traditional view of the relationship between interest and profits, the first being a deductible expense while the second is not, and in addition the issue of profits, from a mistaken criticism of the so-called “double taxation of profits ” (is it real? Is its existence a bad thing?), no unanimous solution exist in practice and in the international doctrine. This has again contributed to the harmful international tax planning.

The failure of the “thin capitalization” systems has done nothing but encourage on one hand, over -indebtedness of individuals and businesses, and on the other hand, the appearance of unnecessary financial products, enhancing the credit purchase of non-perishable consumer goods (found in the “real estate bubble”) and, for the umpteenth time, the flight towards the real “predators” of the world system, which are the “tax havens”.

In summary, we have built a disjointed tax system, favoring the bubbles and the very creation of all kinds of aggressive tax planning or tax evasion.

As if this was not enough, the forced or real tax burden reduction on the financial system and mobile capital income have helped, even indirectly, to tax more the labor, “focusing”, from the tax point of view, on the productive human activity, even in terms of comparative costs, encouraging the capitalization of production processes and decreasing the demand for labor, favoring unemployment, while incentives for effort and the so-called “entrepreneurial spirit ” were diminished.

On the contrary, on many occasions we have promoted tax exemptions for the financial system and their absurd “creations” often lacking valid economic reason.

Furthermore, since we have “forgotten” that the tax system must be fair, both horizontally and vertically, we have favored (on the grounds, among others, that if we didn’t do it, incomes and assets would go abroad) an unfair tax system, virtually eliminating progressive taxes on income and wealth.

We had also “forgotten” that some taxes on wealth, on fixed bases, do not highly depend on the economic cycle (Successions and inheritances) and they allow some income and transactions control, involving resources that, in times of economic crisis; did not have of a conjectural nature and, therefore, were anti cyclical.

We have consequently undermined the legitimate and democratic component of tax systems and have favored the “pirates” and other tax havens.

Can anyone argue, therefore, that the tax system “had nothing to do with the international systemic crisis”?

We could dig deeper into the matter, but the “blog” writing invites, as Teacher Gracian would say, to comply with “more quintessence than zeugmas.”

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