Utopian Visions Toward a Grand Unified Global Income Tax

Abstract

A grand unified global income tax (GUGIT) may prove as elusive as the grand unified theory (GUT) that physicists have sought for many years. Yet, just as recent discoveries bring physicists closer to a GUT, developments in the international financial and tax worlds may move a GUGIT into imaginable reach. Since the discussions of a global unified corporate tax base in the early 1990s, significant and often surprising changes have taken place in the financial and tax worlds. Several of those changes include: (1) the European Union (EU) expanded eastward to include many of the former Soviet satellite countries; (2) seventeen member states of the EU, including several from the eastward expansion, eliminated their national currencies in favor of a single common currency; (3) the Organization for Economic Cooperation and Development (OECD) shamed and coerced many tax havens into cooperating in the exchange of information in tax matters; (4) Switzerland and Liechtenstein began to negotiate limitations on the protection they offered to foreign investors under their financial institution secrecy laws; (5) Russia’s suspension of payments on its sovereign debt in 1998 driving the failure of major investment pools and their managers and the subprime crisis in the United States in 2007 leading to the financial crisis in 2008 threatened to undermine the world economy and brought the concept of systemic risk to prominence; (6) in the United States, the 2008 financial crisis led to enactment of systemic risk–focused regulation of the economy; (7) the Securities and Exchange Commission (SEC) adopted a proposed rule to converge and convert financial reporting in the United States from generally accepted accounting principles to International Financial Reporting Standards; and (8) the European Commission (EC) took the first definitive step toward cross-border combined income tax reporting in the EU. While barriers to development of a working GUGIT may be just as formidable as barriers to discovery of a GUT, this paper argues that each step toward a GUGIT is a step toward tax transparency, distributional fairness, and public acceptance of the legitimacy of the income tax system.