Over the past several decades, many countries that historically relied on progressive taxes on income, wealth, and decedents’ estates for much governmental revenue have shifted to less progressive and regressive taxes on labor and consumption. Reasons for the shift are many but include international tax competition as world economies have become increasing global. This paper assumes that progressive taxes remain the best and fairest choice for providing governmental revenue, so that a fundamental change in the scope of the progressive income tax is essential to protect progressivity.
The paper argues that the rapid growth of international cooperation on economic and tax matters makes a shift to a unified global income tax possible. A GUGIT would make far better sense than separate national income taxes. The paper goes on to describe a vision of a GUGIT with a global taxing authority and a uniform tax base.
For business entities, the GUGIT would apportion the uniform tax base among countries in which a taxpayer is active based upon a four factor formula that includes sales, property but not intangible property with respect to which physical location has little meaning, labor based upon adjusted payroll that eliminates the distortions of wage differentials or upon person hours, and beneficial ownership. The GUGIT would include a robust related taxpayer definition in order to prevent taxpayers from artificially shifting income to countries that choose to impose lower rates of tax on their shares of the uniform base through transfer pricing and similar devices.
At individual level, the GUGIT would allocate income to the jurisdiction into which the taxpayer intends his or her services to have their impact or upon relative periods of residence during the year. Either method diminishes the benefit of expatriation to avoid taxes but a continuation tax or exit tax may remain necessary to combat tax expatriation.
Ordower, Henry, Utopian Visions Toward a Grand Unified Global Income Tax (2013). Florida Tax Review, Vol. 14, No. 5, 361 - 418 (2013).