The Last Great Power of Nations – Sovereignty – Is the Power to Tax

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The global world has created a world of global technology and commerce that has far surpassed the ability of governments to keep up or track effectively global markets, global finance, global commerce and even global movement of ideas through the internet.

Someone much smarter than I, with a dedicated career in tax policy with the federal government, recently pointed out that the last great power of governments as sovereigns, is the power to tax.  In the case of the U.S., it’s the power to tax its citizens wherever they reside.  That power was first exercised in the 19th Century during the U.S. Civil War.  See, The U.S. Civil War is the Origin of U.S. Citizenship Based Taxation on Worldwide Income for Persons Living Outside the U.S. ***Does it still make sense?

Government tax authorities have in the past worked as silos of information, country by country and within each country.  In contrast, global technology and global finance and commerce works as part of a world wide web of activity, information flow and business transactions.

The move afoot by governments to collect global financial information of individual and corporate taxpayers (via FATCA in the case of the U.S. – and the  Common Reporting Standard for automatic exchange of tax information  in the case of the OECD countries) is an attempt to move away from the country by country information silos of any particular country and reach into the world wide web of activity, specifically financial information and related commercial activity throughout the world.  See,  OECD’s Automatic Exchange of Information – Following the U.S. Lead of FATCA – for Better or for Worse

As governments protect their last great power as sovereigns, i.e., the power to tax, this move of collecting global financial and commercial information will continue to grow and expand for the foreseeable future.

 

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