Ambassador
Ambassador's Speech
AMBASSADOR WAYNE’S SPEECH ON FISCAL FEDERALISM AND TAX COMPLIANCE CULTURE AT THE ARBA CONFERENCE
December 11, 2008
Intro
Thanks to ARBA Director Sergio Montoya for this invitation. I'm pleased to be asked to join Governor Scioli and Ambassador Estrella in opening this important conference "Federalsimo, Ciudania Fiscal y Sistems Tributario."
The subject of taxes and tax cultures is very complex – it was Albert Einstein who famously said "The hardest thing in the world to understand is the income tax." Alas, as a humble civil servant, my wife tells me that my own income tax statement is far too easy to understand.
Tax Administration
Tax administration worldwide is generally measured on two dimensions: By efficiency -- the cost of achieving compliance -- and by effectiveness -- the results.
In the U.S., we've done well on tax efficiency by making it easy to comply. We've done so by exploiting all possible channels to make people aware of their obligations, by using technology to make filing tax returns easy, including by promoting internet filing, and by setting up a Taxpayer Advocate Office to allow taxpayers one-stop problem solving.
We've worked to improve tax effectiveness by creating an environment where people don’t object to complying -- by constantly striving to improve and make visible the services paid for by taxes; and by working to prevent and punish the misuse of public funds.
By the way, the US has a pretty good record of tax compliance. Most studies show that about 85% of U.S. taxes that are due are paid on time. That's a good record, but some countries do even better – notably in Scandanavia.
It's also worth noting that the U.S. individual income tax is highly progressive: out wealthiest citizens pay more in taxes than others do and this was an important part of the debate in our recent elections.
Fiscal Federalism
The visibility of the results of government services paid for by taxes is the foundation of tax compliance and the whole concept of a federal system of government is based on the idea of keeping decisions on taxes closer plus their use closer to the voters. Thus in discussions of Fiscal Federalism, one truism is that the efficiency of public expenditure is enhanced the closer expenditure decisions are made to those affected by them. I think it's also the case that local and provincial governments -- because they are in a sense "closer" to their electorates, with a smaller constituency than national governments -- have more opportunities than national governments to make public services more visible and accessible. This means that their services can be held to high levels of public accountability.
Fiscal Federalism is always strongly debated -- here, in my country, and throughout the world -- and one size does not fit all. Individual societies apportion revenue collection and spending responsibilities across federal, provincial and municipal levels of government in ways that best suit their particular needs and challenges.
This becomes even more apparent in times of economic hardship when tax revenues drop. Many states in the US are currently facing such challenges.
I see a number of U.S. experts on Fiscal Federalism will be participating in today's seminar, including Harvard professor Kirk Stark. I expect that we'll all learn a great deal today.
Conclusion
Let me conclude with a quote from Oliver Wendell Holmes, one of our most famous U.S. Supreme Court Justices: "Taxes are what we pay for civilized society.'' I salute the efforts of ARBA to deepen the Province of Buenos Aires tax compliance culture. And I thank you again for inviting me here.
Background
In 2005, the top 5% of U.S. taxpayers paid more almost 60% of all individual income taxes, and the top 1 percent paid 39%. Taxpayers who rank in the top 50% percent of taxpayers by income pay virtually all individual income taxes.
