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This rather abstract normative argument can be rendered more concrete by considering specific policy areas. In this section, I propose to review the process of the Europeanisation of taxes. Taxation is continuously said to be a core competence of the nation-states. The third stage of Monetary Union has augmented the stakes. It is now frequent to hear that tax policy is the last trench of the nation-states, deprived as they are of monetary pulleys and levers. It is rather curious that Joschka Fischer does not even consider this (although there is a direct reference to the Europeanisation of monetary policy, there is no reference whatsoever to public finance in the speech). My claim is that the present state of play in the Europeanisation of tax matters makes it clear that Fischer's basic intuition is right. Namely, that furthering political integration within the European Union is not against democracy, but could allow us to improve democracy. This is so because Member States have less room for political manoeuvre in relation to the taxes which have not been Europeanised than they have regarding the taxes for which a common normative framework has been established.
The usual argument that taxes have not been harmonised at European level is more accurately reformulated as the premise that there has been no positive harmonisation of personal taxes, what are usually referred to as direct taxes. The first flaw in the usual rhetoric about taxation is that it neglects that some taxes are already Europeanised. This is true of customs duties, and, to a good extent, also applies to Value Added Tax and to excise duties (although to a lesser extent). The actual failure of the European political process is correctly circumscribed to personal taxes. Despite the fact that ambitious plans for comprehensive tax harmonisation have been on the agenda since the very beginning of the Communities25 (the need for some harmonisation of corporate taxation having already been discussed in the very early stages of the ESC), not much has been achieved on tax figures burdening capital or corporate income.26 The relevant thing is that the formal preservation of national sovereignty has come hand in hand with the progressive erosion of the de facto sovereignty of the nation-states.27 This is to be explained by two parallel processes, namely, the de-regulation of cross-border capital flows (quickly implemented after the demise of the Breton Woods international financial architecture)28 and the implementation of the merely negative aspects of the free movement of capital within the Community.29 It does not take much ingenuity to see that, under such circumstances, all states have tended to reduce the tax burden over capital income and shift it to labour income. It is difficult not to see that this reflects a loss of factual sovereignty. Nation states have an increasingly narrow margin for manoeuvre in the design of their tax systems. Most of the discussions surrounding the major tax reforms that have taken place since the eighties have focused on the consequences that the reform would have on the international competitivity of the country in question. If one needs further evidence, one can consider the evolution of some technical aspects of corporate tax, which are directly related to cross-border activities. It is difficult to argue that there is much democratic support for the reforms of the tax treatment of capital gains or of the taxation of savings, which tend to go almost unnoticed by the public, despite their major distributive effects. Tax reforms of such elements of the tax mix are normally undertaken citing the argument that `whether you like it or not, there is no alternative.'
It is paradoxical to see that the same nation-states have much more room for political decision concerning taxes which have been Europeanised. This is the case with the Value Added Tax, for example. A set of European directives constitute the basic normative framework for national laws defining the Value Added Tax. Member States have to design their taxes according to the tax base definition established at European level. However, this allows them to have room to fix the basic rates of VAT, and they can also apply preferential rates to certain products or activities. This ensures a smooth working of the tax, and allows sufficient room to make politically significant and transparent decisions. Reducing or increasing the basic VAT rate is a politically relevant decision, and different governments have opted for different solutions in line with the national political preferences.30
This all boils down to evidence that democracy is also a matter of scope. To the extent that the interests of the citizens of many different states are at stake, it is clear that national decision-making is bound to be either undemocratic or plainly ineffective, and, thus, against the real preferences of citizens. This makes it clear that, for a common action norm in this respect, we will need to have resort to the supranational level. But, in a way, this is part of the traditional liberal motto, no taxation without representation. Not only does it require voting rights within the polity to be extended, it also requires matters to be decided in institutional frameworks where all those affected can be represented. In personal tax matters, this implies a common normative framework decided at European level. Only in this way can Member States regain actual political sovereignty.31 Clearly, this does not make such a level of governance immediately democratic, as this will depend on procedure, substance and implementation.
25 See the comprehensive Neumark report. It can be found in The EEC Reports on Tax Harmonisation (Amsterdam: International Bureau of Fiscal Documentation, 1963).
26 See, Farmer & Lyal (1993); Martín Jiménez (1999).
27 See, Avi Yonah (forthcoming).
28 See, among others, Taeko (1993:184 et seq).
29 See Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty. See Official Journal L 178, 08/07/88, pp. 5-18. Of course it is difficult to determine the relationship between different causal agents. The two ones to which I make reference seem to be the remotest causes of many other relevant developments, but this might be inaccurate. For example, one could consider that a major cause of the erosion of national control over the economy is the volatility of capital markets. My assumption is that short-termism in economic decision-making has been rendered possible by the previous deregulation of capital markets. And that it has been aggravated by the specific way in which freedom movement of capitals was implemented in the Union.
30 For example, the basic VAT rate went down 1 point in France in April 2000. See, WorldWide Tax News (International Bureau of Fiscal Documentation), document TNS-51 (2000).
31 A further question is why such normative framework must be a fully supranational one, and not one established through classic international law. Fully tackling this issue will triple the size of this note, but it can be said that the functional argument (member states can no longer act unilaterally and be factually sovereign) can be complemented by normative arguments of different kinds in favour of decision-making at European level. One could be that a purely intergovernmental solution would not be sufficiently sensitive to the strength (in number and in reasons) of transnational coalitions in support of certain measures. As things stand, one member state (even of the size of Luxembourg) can veto any proposed arrangement, without any need to invoke the reasons, acceptable to others, for adopting such a stance. It is puzzling to hear that an institutional arrangement that makes that possible is the essence of democracy.