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Florida Tax Review

Abstract

This paper proceeds in three initial Parts, each of which examines one of these tax-technology developments. A concluding section follows in a fourth Part that assesses and applies these technological developments and presents a specific proposal for tax reform targeting regressivity in the consumption tax.

Part 1 considers biometric identifiers embedded in national identity “smart cards.” It observes that they are here today. They are currently in use in Asia and parts of the EU with comprehensive EU implementation just over the horizon. Similar IDs in America will be in place by 2008under the Real ID Act. This Part then argues that these cards are slowly (through the function creep of the technology) transforming tax delivery services in the EU, and will do the same in the U.S. It further argues that excess capacity in these cards can effect a hyper change in the delivery of tax services–it can allow the surgical application of consumption tax exemptions to the needy thereby allowing abroad base and single rate to be applied in all other situations.

Part 2 considers fully digital consumption tax regimes. It observes that fully digital consumption tax systems are here today in both VAT and RST systems. In the EU a limited digital reporting and payment “pilot” is operational under the Digital Sales Directive, while in the U.S. a limited digital reporting, payment, and calculation “pilot” is in full operation under the Streamlined Sale Tax. This Part then argues that the time has come for a comprehensive digital consumption tax, similar to the one proposed to the President’s Advisory Panel on Federal Tax Reform. With a digital consumption tax in place, full advantage could be taken of the capacity of the “smart” ID to exempt the poor from the tax. (Although greatly enhanced by a fully digital consumption tax, the tax delivery benefits of the “smart” ID are not dependent on it. In some instances, even under a digital consumption tax, paper processes may be needed in small businesses or remote locations).

Part 3 considers certified compliance software. It observes that software certification regimes for global VAT compliance have been proposed by the OECD, and are operational under the Streamlined Sales Tax in the U.S. This Part then argues that certification of tax software is the final piece in solving the consumption tax’s regressivity puzzle. Tax calculation software not only (a)answers the global demand for corporate governance reform through certification of software solutions but it (b) is the vehicle through which the “smart” ID will effectuate the exemption of the poor.

Part 4 provides a summary of the previous Parts by turning the argument of this paper on its head – it considers the regressivity of the consumption tax from the perspective of the traditional barriers to the establishment of a progressive tax instead of from the perspective of the technology that allows us to resolve it. This summary specifically looks at the barriers of (a) tax fraud, (b) surgical capacity and (c) audit/ compliance. This Part then closes with a proposal for tax reform that will eliminate the regressivity of the consumption tax.

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