Tax simplification: unlikely to get you out of bed in the morning. If it does, you’re probably concerned about the business burdens of a lengthy tax code. I think a much broader group should care about tax simplification, particularly those that wish to protect and strengthen democracy.
I’ve spent the last few months interviewing tax directors at large businesses. A common thread through almost every conversation was how complicated the international corporate tax regime is and how this causes all sorts of harm. Many of these harms are familiar and largely economic in nature: costs, unpredictability and so on. But in the course of those interviews, another downside emerged. Tax complexity is bad for democracy.
Most importantly, a highly complex corporate tax system limits the ability of citizens to engage in discussions about tax. While most of us don’t live in the world of BEPS, CbCR or the other tax acronyms, this doesn’t mean we’re not interested in businesses paying their fair share. Indeed, for a separate project speaking to the public about personal taxation, time and time again the public raised concerns about the way big business pays tax. But the complexity of the current system is a genuine barrier to the public engaging with tax.
Not only does this lead to a less well-informed public debate, it also blocks a new approach to tax policy making. I’ve previously argued for a more participatory approach to tax policy making in which the public are in the driving seat, not Whitehall mandarins and lobbyists. But again, moving towards this will always be a challenge when the current regime is so complex.
Complexity also limits the possibility of debate and critique. In my experience, probably a relatively small number of practitioners and academics truly understand the international tax regime. This gives these individuals enormous power, allowing them – if they wish – to gatekeep the terms of debate. It can never be healthy in a democracy for a small number of people to have so much influence. Yet the confluence so often of business interests and expertise here is particularly concerning, making it difficult to distinguish between well-meaning advice and cynical lobbying.
Biden’s proposed reforms of the global tax regime provide an opportunity to change the system’s design. Most relevantly, they provide the opportunity to reduce international tax competition. This creates the space for a simpler tax regime: fewer initiatives and counter-initiatives are required, as are fewer anti-avoidance mechanisms.
Some experts will dismiss attempts to reduce things to their essentials, but that doesn’t mean we should abandon those attempts. As in many areas of policy, most people will never understand the details. But that does not mean that the principles should not be clear.