Emilio Albi and Jorge Martinez-Vazquez (eds), The Elgar Guide to Tax Systems, Edward Elgar, 2011, xi + 462 pp, hbk, 0 85793 388 1, £145
The editors’ introduction to this volume of thoroughly researched conference papers shows just how much has changed in OECD tax systems during the past few decades: flatter income tax rates, ubiquitous VAT, the almost complete disappearance of wealth taxes, a substantial reduction in excise duties, and much more. The separate chapters discuss the reasons for these changes, and also such fields as corporate taxes, environmental taxes, decentralized taxation, tax administration, and the relationships between tax policy, politics, and research. The important debates within taxation policy are discussed: the balance between direct and indirect taxation; different types of taxations’ relationships to economic stabilisation, growth, competitiveness, and income redistribution; whether capital income should be taxed (yes, minimally); how viable (national) corporate taxes are in a globalizing world; whether the decline of wealth taxes and of excise duties is inexorable; how VAT and environmental taxes are best designed; whether anything other than a property tax is a good candidate for subnational taxation; and the extent to which administrative feasibility should drive taxation policy. The final two chapters tackle two different influences on tax system reform: politics, and research. The authors conclude that political considerations are important determinants of tax systems, and particularly of their complexity, and that research is more likely to follow policy change than to lead it. Given this, the researcher’s task ‘is the long-term game of building up the institutional capacity both within and outside governments to articulate relevant ideas for change, to collect and analyze relevant data, and of course to assess and criticize the effects of such changes as are made’ (p.443).
Of particular interest to readers of this Newsletter will be chapter 3 on individual income taxation. True tax credits are correctly understood as income tax allowances which are paid out proportionately to the amount that earned income falls below a threshold, and these are rightly seen as enhancing progressivity and as being efficient to administer. (The UK’s current ‘Tax Credits’ are a means-tested benefit, and not tax credits.) ‘To the extent that all tax credits and exemptions were made refundable, this would turn the income tax system into a full-fledged negative income tax system,’ (p.105). The chapter identifies as problematic both income transfers not delivered through the tax system, and tax credits which change with a household’s circumstances. It notes that enhancing refundable tax credits delivered through the tax system to complement stand alone transfer programs could go some way to alleviating poverty in the lower income range (p.106). This is a lesson that the UK Government learnt during the early 1970s, but has forgotten since.
At a point in the discussion at which the UK’s Child Benefit might have been discussed (where universal education provision and the Child Trust Fund are discussed), there is no mention of it; and what I didn’t find in this collection was any understanding of the administrative and other efficiencies related to a combination of universal benefits and a progressive income tax. This is a pity in such a wide-ranging collection.
Positively important to the Citizen’s Income debate is the light which this collection throws on a variety of possible funding methods. The chapter on environmental taxes is relevant, as is the mention of land tax (p.337). What isn’t in the collection is any discussion of a field which will one day be important: transnational taxation. There is now wide recognition of the possible utility of a ‘Tobin’ financial transaction tax, including the European Commission’s welcome recognition that this kind of taxation would best be administered at regional level, and therefore by the EU. Any future collection of papers on taxation policy really will need to discuss the feasibility of transnational tax collection and whether a financial transaction tax might fit into this category.
Perhaps it isn’t fair to say too much about what a book hasn’t done when it’s done so much already. The book discusses many of the issues facing tax systems and attempts to reform them, and it will be of considerable value both to policy-makers and to students of taxation policy.