The Oxford English Dictionary defines 'fiscal' as: 'of or pertaining to the treasury of a state or prince'. Thus it covers both the raising of money and the spending of it. By and large it has been true throughout recorded history that States or monarchs have had responsibility for both sides of the equation, although they have typically had more freedom to spend than to raise money. This is not likely to change; indeed, from the perspective of the State the situation is going to get worse, since the globalization of business and increasing personal mobility will make it ever more difficult to collect tax, while demands on spending will continue to expand.
The positive side of this mismatch is that States will be prevented from encroaching further on individual freedoms, simply because they won't be able to afford it. In fact, many types of expenditure which are currently seen as state responsibilities will migrate into the globalized, private sector where they can become economic market goods. They should never have become state responsibilities in the first place. Medical and retirement provision are two clear examples. People will have a far wider range of choices in a globalized market for such social goods.
The likely outcome of the tension between unequal national income and expenditure streams will be considered in Chapter 8: The Future of the State. This chapter will describe some of the trends which are leading towards the globalization of taxation, the main ones being:
First, though, it is necessary to review some aspects of the history and recent development of taxation, and the regulatory environment in which it takes place.
The power to raise taxes is said to be one of the characteristics of sovereignty, although it is only in modern times that the state has acquired sufficient knowledge about its citizens, and control over them in a physical sense, to be able to collect taxes in a direct way.
In earlier, less developed societies the monarch tended to raise taxes through levies on goods – either on importation or production, or at the point of consumption, through the sale of privileges and licenses, and through stamp duty or its equivalents on transactions involving real property of various types.
Rent rolls compiled by governments, the Church or major landowners have been a feature of almost all societies, and they are concerned to list the worth of property holdings; the names of tenants are incidental to the process. The most famous example is of course the English Domesday Book.
Income tax and inheritance tax are more recent additions to the armoury of tax weapons, since both required knowledge of the existence of individuals and the ability to contact and assess them, something that was lacking through most of recorded history. The first census in the UK was in 1841, with other European nations and the US following rapidly, so it is no surprise to find that personal taxes such as income tax and inheritance tax made their appearance in the late 19th or early 20th centuries.
Since then, the appetite of governments for control over all features of life has been limited only by their ability to raise enough money through taxation or borrowing. Public expenditure as a proportion of national income has risen inexorably in all developed countries, and continues to do so, with occasional retrenchments. Between 1800 and 2000, public expenditure in the OECD countries climbed from about 10% of national income to an average of 42%. Inevitably, taxes have risen to match.
In the US, for instance, corporation tax was instituted for the first time in 1909 at the rate of 1% (previously, corporate profits had been attributed to shareholders). Currently, it is levied at 35%, although it rose as high as 53% at times during the 1960s and 1970s.
Until 1900, the level of taxes was not so great that people needed to develop systematic ways of escaping or reducing them. Of course, people have always tried to avoid paying taxes, and the tax collector is one of the most execrated figures in history; but from roughly 1920 onwards, the game played between taxpayers and revenue authorities took on a more thoroughgoing aspect.
The last 20 years of the 20th century saw an escalation of the battle, culminating in a determined attempt by the 'multilaterals' (the OECD, the FATF, the EU, the United Nations and the IMF) to bring a halt to the runaway success of the lowtax (often 'offshore') jurisdictions in attracting capital and income flows away from higher-taxing countries.
These attempts were only partially successful, and in any event it is important to see them in historical perspective. The battle of taxman and taxpayer is one of the longest-running sagas of the ongoing development of human society, and without any doubt it will be continuing long after the offshore wars of the late 20th and early 21st century are forgotten about.
One sure statistic is that, despite all attempts by the multilaterals and high-taxing countries to restrain 'offshore', low-taxing jurisdictions have increased their share of total assets and total income streams over the last 20 years. The total proportion of the world's wealth that is based 'offshore' is said to be well over 60% – and that figure is rising, both because existing offshore assets increase largely without being held back by tax, and because people continue to take every opportunity to re-direct income streams away from high-tax areas and into low-tax ones.
By and large, 'offshore' assets can be said to be 'globalized' assets, since it is of the essence of offshore that banking, investment fund or trust assets can be moved around the world without taxation. By contrast, high-taxing 'onshore' jurisdictions put every imaginable barrier (usually a tax one) in the way of their resident citizens' freedom to dispose of their assets as they choose.