Debate on international taxes FES Briefing Paper June 2006 Page 5 make profits for their owners, without any possibility to tax them in a given country for their consumption of the environment. Now, if anyone profits in this way from globalization, it is actually only logical that these earnings should be taxed globally, with the revenues being used to fund the environment, development, and other global public goods. The Landau Report for this reason sees international taxation of TNCs as“a normal counterpart to the benefits[TNCs] derive from globalization.”(Landau 2004: 16). Globalization as a legitimation for international taxes The globalization-related erosion of the nation­state’s tax base is not only an economic problem. This development at the same time strikes at the heart of modern statehood and democracy. A good measure of democratic sovereignty is being lost because the sovereign is gradually being deprived of the material means it needs to shape and sustain the community. If the chronic crisis of public finances leads to further deterioration of community social and physical infrastructure, the erosion of democratic policy spaces and options will also be a consequence. Hence, international taxes may be seen as democratically legitimate because they restore to the democratic sovereign- the citizenry- some of the scopes it needs to give positive shape to life in the community. While this can certainly not be seen as the one-and-all solution to the globalization-related problems with which democracy has to contend, it is nevertheless a key moment of democratization. If the argument “No taxation without representation” is not to relinquish its democratic substance- the power of the sovereign to formulate and implement public policy- the new interrelationships between globalization and taxation will have to be taken into account. Taxes as a regulatory instrument Another noteworthy advantage of taxes is their regulatory function. They can be used to set incentives to pursue certain economic or sociopolitical goals. Viewed in economic terms, taxes can serve to eliminate or compensate for negative externalities and/or to generate positive externalities. We must, to be sure, bear in mind here that a successful regulatory effect may also lead to a decline in, indeed in tendency even to a complete loss of, tax revenues. If this is not intended, or if the ultimate outcome could be new negative externalities, it is essential to strike a proper balance between regulatory effect and tax revenues. International taxes can also be used to achieve such regulatory effects- e.g. a currency transaction tax designed to drain a macroeconomically harmful level of excess liquidity from the market, or an air­transportation tax designed to lower kerosene consumption or reduce emissions. Earmarking as a key factor for legitimacy And last but not least, earmarking revenues from international taxes for purposes that enjoy a high level of moral authority may serve to boost the acceptance of such taxes. This is the reason why advocates of international taxes are in favor of starting out by using these revenues to finance the MDGs(United Nations 2004). The issue of earmarking is as a rule not relevant for national taxation. One of the fundamental principles of national tax policy is precisely that tax revenues are not earmarked for specific purposes. All the same, at present more and more exceptions to this principle can be observed in national taxes. For example, the revenues from the German ecotax are used to fund social expenditures. Also, the contributions paid by the EU member countries to fund community institutions are financed from a given, earmarked share of their national VAT revenues. And the church tax officially levied in Denmark, Germany, and Switzerland also has some very clear-cut features of earmarking. The most important proposals on international taxes The most popular of the proposals on international taxes is the one advanced by the Nobel laureate in economics James Tobin. It calls for a tax on currency transactions. The underlying idea goes back to Keynes. The concept, as well as a number of variants, have been elaborated in great and differentiated detail. Some recent studies have worked out the legal and technical aspects to the point where the CTT, in a modified, two-tier variant of the Tobin proposal, is virtually ready for implementation(Jetin/ Denys 2005). The issues remaining to be resolved boil down to little more than a matter of the political will needed to take the first step. Despite massive resistance, the number of advocates of the tax continue to rise. Both the French and the Canadian parliaments have come out in favor of the tax. In 2004 the Belgian parliament even passed a relevant bill, although it is set to come into force only if other EU countries follow suit. The advocates of a CTT also include Nobel laureate Joseph Stiglitz, the German Bundestag’s fact-finding commission on globalization(Deutscher Bundestag 2002),