Taxing Europe: Two cases for a European power to tax (with some comparative observations)

Discussing the argument that the EU should hold a European taxation power, the author finds this claim to be fully justifiable on an empirical as well as a normative basis. Legally mandated by Community law, EU taxation is also normatively desirable from the point of view of European public space and the redistributive requirements of an enlarged Europe.

ARENA Working Paper 03/2003 (pdf)

Agustín José Menéndez

This paper considers the need for granting the European Union a genuine power to tax. The argument is developed in several steps. First, it is shown that the granting of such a power to tax is both legally mandated and legally framed. In stark contrast to classical international organisations, or for that purpose, to the Articles of Confederation, the Communities were expected to acquire full taxing and spending powers. Special attention is paid to the affirmation of the principle of social and economic cohesion as one of the fundamental principles of Community law. Second, it is argued that the development of a genuine EU power of taxation is normatively desirable. The positive normative properties of a European power to tax are unfolded in two reform cases: the modest and the ambitious cases of reform. The principle of no public expenditure without taxation is shown to require the financing of the present European budget through taxes. A proper determination of requirements of distributive justice in a complex political community is said to defend a larger European budget, aimed at the redistribution of economic resources among the citizens of the European Union. Third, the two cases of reform are prudentially advisable. Redistributive taxation is the price of European civilisation. It constitutes a basic precondition for the successful consolidation of the Union as a political community, and for the proper integration of new members once enlargement to the East is fully effective. A summary look to the American case further shows that the creation of supranational institutions tends to lead to the establishment of central powers to tax. Those tend to be reinforced once the question of distributive fairness in the allocation of public burdens becomes a central one in the political agenda (as it was the case in the United States from, at the very least, the turn of the XXth century). Fourth, the two cases of reforms are feasible. Legal, normative and prudential criteria point to the (partial) transfer to the Union of the power to tax savings income and corporate income.

Tags: tax policy, positive integration, European law, supranationalism
Published Nov. 9, 2010 10:52 AM