Chapter Three: Fiscal Globalization

IV. Personal Taxation

Along with armies, currencies and legislatures, fiscal power would appear to be one of the 'red line' characteristics of sovereignty, which most nation states will give up only under the most intense pressure. They have more or less lost that power as regards corporate taxation, as explained above; but they certainly retain it over the individuals who reside on their territory. There are other sources of taxation, to be sure, which can sustain a national revenue stream (in order to pay for the jobs, privileges and pensions of civil servants and politicians), such as stamp duty, property taxation and VAT; but modern states would be very badly off indeed if they were unable to take part of the revenue and capital (whether during life or at death) of their citizens.

Individual citizens, except at the highest levels of wealth, are firmly rooted within the nation state of their birth, due to inertia, language, family ties and culture, allowing nation states to tax them with little fear that they will decamp to rival countries. At least, that is true during their productive (and most tax-generative) years. In retirement, people have more choices. Recent surveys have shown that astonishingly high proportions of people in high-taxed countries such as the UK would leave if they could, and many are preparing the way by buying properties in countries which they see as being more welcoming (warmer, less expensive and less taxing).

There are long term trends which will gradually break down the convenient access nation states have to the income and assets of their citizens, including:

It is not easy to forecast how this combination of trends (and others) will work out, but it seems unavoidable at least that the taxing countries will reach an agreed international solution, possibly based on residence periods. Thus, there could be universal taxation based on physical residence (you live in the Comoros Islands for six days in a year, you will pay tax on 6/365 of your global income to the Comoros, at their rate of income taxation). As suggested above, there will be no corporate tax ('People pay taxes, not companies' - Mrs Thatcher, c. 1980), withholding taxes, VAT or double tax treaties (not needed).

Alongside some kind of globalization of personal taxation, it is reasonable also to expect that there will be a global currency, and world-wide insurance for health-care, pensions etc, with such 'social' benefits being provided by global, private companies rather than by nation states.

There are some pre-conditions to such a system, however, including (something inevitable) that individuals will have tamper-proof biometric identification, that financial flows will be fully transparent, and that language will have ceased to be a barrier to human interaction (see Chapter 2). These conditions are likely to have been fulfilled by 2030, as described above and as regards language in Chapter 2, so that is the probable timescale of personal fiscal globalization.

Once it has happened, it will be left to countries only to compete in terms of what they can offer individuals: the local income taxation rate, and non-economic goods such as quality of life, law and order, planning and zoning, and 'culture'.

In the medium term there may still be national safety nets for individuals and families; longer-term, they are likely to become part of a globalized welfare system.

These and other aspects of the future of the nation state are dealt with in greater depth in Chapter 8.