CRS Reviews UN Proposals on Global Taxation

[1] A discussion of the possibility of the United Nations promoting and planning imposition of international taxation on U.N. member states, including the United States was initiated in response to the March 2002 U.N.-sponsored International Conference on Financing for Development, held in Monterrey, Mexico. While this issue was not specifically on the agenda of the conference, preparations for the meeting included global taxation proposals as a source of "innovative revenue sources of funding." This was the third time within the past decade that a discussion of perceived U.N.- imposed global taxation has received attention in the United States. The first occasion took place after the January 1996 comments by then-U.N. Secretary-General Boutros Boutros-Ghali suggesting a global tax; the second occurrence was brought about by a recommendation for "taxing the internet" in the 1999 U.N. Development Program (UNDP)- issued Human Development Report. In response to the first two cases, Congress enacted provisions (1) requiring executive branch certification before release of Foreign Operations funds to the United Nations that the United Nations is not involved in any effort to impose or implement taxation on any U.S. person and (2) stating that no funds made available for the United Nations may be used by the United Nations for any activity related to taxation of the internet or international currency transactions.

Contents

Introduction

Why is global taxation proposed and what is its intended use?

[3] Those who suggest global taxation offer it as an alternative or additional source of funding for use in addressing various world problems before the United Nations, including development assistance needs, peacekeeping and conflict resolution, or abatement of environmental degradation. Official development assistance, ODA, the source of governmental voluntary contributions, has over the past several years, continued a downward trend and many believe that ODA was never sufficient to respond to major world problems. In September 2000, the U.N. General Assembly adopted a Millennium Declaration in which it set a series of eight goals, called the Millennium Development Goals, to be achieved by 2015.¹ Various sources suggest that an additional $50 billion of ODA would be needed annually to enable worldwide achievement of these Goals.²

What arguments are used by those who oppose global taxation?

[4] Among the themes of those who oppose global taxation are the following. An international tax is an infringement of U.S. sovereignty and the sovereignty of all nation states that have sole jurisdiction to tax their citizens. Global taxation, under the United Nations, would be one more step toward transforming the United Nations from an intergovernmental international organization of sovereign nations to a world government, with global taxation giving it a source of funding that would make it independent of its member nations.

[5] U.N. expenses are provided for in its regular budget which is adopted by the U.N. General Assembly, pursuant to Article 17 of the U.N. Charter. Each U.N. member State is obligated by the Charter to pay these expenses, as apportioned by the Assembly in its scale of assessments. According to U.N. financial regulations, payments to the U.N. regular budget and to other assessed accounts -- peacekeeping, for example -- are due within 30 days of receipt of the bill. Thus, payments for the U.N. regular budget are due in full by January 30 of each year. As of December 31, 1995, only 94 of the then 185 U.N. member States had paid in full their regular budget dues for calendar year 1995; 22 member States made no payments in 1995. As of December 31, 1995, unpaid assessed contributions totaled almost $2.3 billion, as compared to $1.78 billion, as of December 31, 1994. The $2.3 billion included unpaid regular budget contributions of $564 million and unpaid U.N. peacekeeping assessments of $1.7 billion.³ The failure of member States to fulfill their legal obligations resulted in a cash flow shortage and a financial crisis for the United Nations.⁴

[6] It was in this context of what appeared to be a perpetual financial crisis facing the United Nations that then Secretary- General Boutros Boutros-Ghali, in the Cyril Foster Lecture at Oxford University on January 15, 1996,⁵ and in a prior radio interview with the BBC,⁶ urged member nations to consider a number of supplemental funding mechanisms, including an international tax.

[7] In his Oxford Lecture, Boutros-Ghali raised a series of options member countries could consider to improve the U.N.'s financial situation: a fee on speculative international financial transactions; a levy on fossil fuel use (or its resulting pollution); a small set-aside of the anticipated decline in world military expenditures; use of some resources released by the elimination of unnecessary economic subsidies; a stamp tax on international travel and travel documents; and a levy on global currency transactions. The Secretary-General did not advocate any particular measure, noting that "decisions are for the Member States to take."⁷ He did remark, however, in the BBC interview that an advantage of generating revenues through a tax would be to give the United Nations some financial independence so that it was not "under the daily financial will of the Member States."⁸

[8] Proposals for supplemental sources of income for the United Nations, including taxes, were not new. While the magnitude of the 1995-96 crisis at the United Nations was unprecedented, the organization had experienced recurrent financial difficulties over its history. Numerous proposals to address the funding problem had been made by academics, government leaders, U.N. commissions, and others. During the U.N. 50th anniversary celebrations in the fall of 1995, several world leaders argued that the U.N. financial crisis made supplemental financing methods unavoidable.

[9] One of the earliest proposals, and one which is frequently revived, was a tax on foreign exchange transactions. This was originally recommended by Nobel prizewinner James Tobin of Yale University as a way to dampen speculation and market volatility.⁹ Tobin noted that the tax could generate vast revenues which could be used for international development. A similar proposal, made by historian Ruben Mendez of New York University, was to establish a computerized global Foreign Currency Exchange.¹⁰ Even with extremely small fees or taxes, the revenue potential, it was argued, would be extremely large due to the volume of transactions. Other proposals have included a tax on internationally traded commodities and a tax on exploitation of deep seabed minerals, both discussed in a Brookings Institution study.¹¹ Some have also suggested an international tax on stamps and airline travel.

U.S. Reaction

[10] Immediately following the comments by Secretary-General Boutros-Ghali, U.S. officials and Members of Congress issued sharp statements opposing the concept of an international tax. State Department press spokesman Nicholas Burns said on January 19, 1996, that the United States "does not support any form of worldwide tax to support the United Nations." He also noted that the United Nations has no authority to impose such a tax and that the United States would object to the organization seeking such authority.¹²

[11] Lawmakers also strongly criticized the idea. Senators Dole, Helms, and Gregg announced January 22, 1996, that they had asked the General Accounting Office (GAO) to examine the "legal, financial, and policy implications of independent revenue-raising authority" by the United Nations. In its November 8, 1996, response,¹³ the GAO made the following major findings:

[13] As revised and enacted in an omnibus spending measure, Congress stipulated that no funds may be provided from the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997, for U.S. voluntary contributions to the United Nations, including the U.N. Development Program (UNDP), if the United Nations "implements or imposes any taxation" on any U.S. national or corporation. Further, U.S. voluntary contributions to the United Nations, including the UNDP, may not be paid until the President certifies, 15 days in advance, that the United Nations "is not engaged in any effort to implement or impose any taxation . . . in order to raise revenue for the United Nations or any of its specialized agencies."¹⁸ This provision has been enacted in each successive Foreign Operations Appropriations Act (for FY 1998, FY 1999, FY 2000, FY2001, and FY2002).

[14] Congress did not attach similar restrictions to assessed U.N. payments, as envisioned in the original Dole/Helms and Solomon bills. In late 1999, however, Congress passed legislation authorizing U.S. repayment of arrears on its assessed contributions to the U.N. regular budget and to U.N. peacekeeping operations accounts, after certain conditions had been certified. Among the conditions to be met was a requirement for certification that

[15] On July 12, 1999, the United Nations Development Program (UNDP) released the tenth edition of its Human Development Report 1999 (HDR).¹⁹ Focusing on the impact of globalization on human development around the world, the report's authors presented their view of the world and its problems and offered recommendations for responding to these problems. Among the recommendations included in the report was one for "a small tax on the amount of data sent through Internet" or a "bit tax" as a potential source of supplemental funding to provide access to the Internet in countries where such access is limited. This proposal raised concerns in the United States over the possible intrusive actions of an international organization.²⁰

[16] The HDR report, produced by a group external to the UNDP, was and still is meant to generate discussion of the cited problems and to offer recommendations. It includes language after the Foreword indicating that the "analysis and policy recommendations . . . do not necessarily reflect the views of the United Nations Development Programme, its Executive Board or its Member States. The Report is the fruit of a collaborative effort by a team of eminent consultants and advisers and the Human Development Report team."²¹ In addition, it is published and sold by a private publisher, not by the UNDP.

The Proposals

[17] Chapter 2 of the 1999 HRD discussed "new technologies and the global race for knowledge," and stated that

[19] Chapter 5, on "reinventing global governance -- for humanity and equity," argues that "private investment flows are important, but experience shows two major problems. First is their volatility . . . . Second is the tendency for foreign direct investment to be concentrated in a small number of developing countries." The authors then list "several possible ways to generate . . . additional revenues:

• Mobilize resources as a by-product of revenues raised from polluter pays charges on global pollution.

• Charge rents or royalties on the use of such "global commons" as under-seabed mineral resources or radio waves.

• Introduce taxes on such items as international air tickets.

• Implement the Tobin tax proposal -- to levy a charge on short- term financial movements and restrain volatile flows of short- term finance. Some of the proceeds could be invested in poor countries.

• Blend concessional finance with private lending and make the proceeds available as a third-window for middle income countries.²⁴

U.N. Response and U.S. Reaction

[21] Shortly after the Human Development Report 1999 was released, the UNDP Administrator issued a statement that the

[23] On July 22, 1999, the Senate included in S. 1217, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act for FY2000, an amendment introduced by Senator Gregg: "None of the funds appropriated or otherwise made available in this Act for the United Nations may be used by the United Nations for the promulgation or enforcement of any treaty, resolution, or regulation authorizing the United Nations, or any of its specialized agencies or affiliated organizations, to tax any aspect of the Internet." This language was incorporated as section 406 of the State Department Appropriations Act, Fiscal Year 2000, which was signed on November 29, 1999 (Consolidated appropriations bill, P.L. 106-113).

[24] Some observers directed their attention to the U.N.- sponsored International Conference on Financing for Development, held in Monterrey, Mexico, March 18-22, 2002, as the source and venue for discussions within the United Nations aimed at creating a global tax or an international tax organization.²⁸ While the Monterrey Consensus, the "outcome" document for this meeting, does not refer specifically to taxation proposals, it does include the following language:

[26] In December 2000, U.N. Secretary-General Kofi Annan appointed a High-Level Panel on Financing for Development, to "recommend strategies for the mobilization of resources required to accelerate equitable and sustainable growth in developing countries as well as economies in transition, and to fulfil the poverty and development commitments enshrined in the United Nations Millennium Declaration" adopted by the General Assembly in September 2000. In June 2001, this 11-member Panel, chaired by Enesto Zedillo, former President of Mexico, issued a 72-page document consisting of an Executive Summary, Recommendations of the High-level Panel, and Technical Report of the High-level Panel. ³⁰ Under the heading, "Innovative sources of financing," the report noted that

[28] Finally, in September 2001, the U.N. Secretariat issued a series of ten Technical Notes in response to a request by the Conference Preparatory Committee, which instructed that these notes be "related to issues falling under the substantive agenda for the Conference" and "consist of the factual, concise listing of existing proposals in a given topic" and "not . . . contain any analysis, comparisons, judgements or recommendations."³³ Two of the ten topics, chosen in consultation with the Preparatory Committee, dealt with taxation issues:

1. Existing proposals for enhanced international cooperation on tax matters.

3. Existing proposals for innovative sources of finance.

Response

[29] While little, if any, public reaction from U.S. Administration officials to these proposals was visible before the Conference started, it was clear that U.S. efforts during private negotiations on the Monterrey Consensus had been successful in removing specific references to global taxation from the draft. The only pre-Conference public reaction in the United States came from "conservative" columnists and sources that saw imposition of global taxation as a definite goal of the conference and who believed this to be part of an overall effort within and by the United Nations and its "bureaucrats" to diminish the sovereignty of U.N. member states. United Nations officials responded to some of these pre-conference columns, noting that

Foreign Operations Appropriations Act

[32] In 1996, Congress stipulated in the FY 1997 Foreign Operations Appropriations Act that no funds may be provided from that Act for U.S. voluntary contributions to the United Nations, including the U.N. Development Program, if the United Nations "implements or imposes any taxation on any U.S. national or corporation." This provision was added in response to remarks made by then U.N. Secretary-General Boutros Boutros-Ghali suggesting U.N. Member States explore the possibility of a global tax to improve the financial situation of the United Nations. Congress has continued this provision annually in the Foreign Operations Act.

[33] The full text of the provision in the most recently passed Act (P.L. 107-115 (H.R. 2506), January 10, 2002) follows.

[34] On July 22, 1999, the Senate included in S. 1217, the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act for FY2000, an amendment introduced by Senator Gregg: "None of the funds appropriated or otherwise made available in this Act for the United Nations may be used by the United Nations for the promulgation or enforcement of any treaty, resolution, or regulation authorizing the United Nations, or any of its specialized agencies or affiliated organizations, to tax any aspect of the Internet." This provision was added in response to language in the Human Development Report 1999, suggesting a "small tax on the amount of data sent through Internet." It was enacted in the Consolidated Appropriations Act for Fiscal Year 2000, P.L. 106-113 (H.R. 3194), November 29, 1999.

[35] The full text of the most recent enacted provision, in P.L. 107-77 (H.R. 2500), November 28, 2001, follows.

[36] In late 1999, Congress passed legislation, the United Nations Reform Act of 1999, authorizing U.S. repayment of arrears on its assessed contributions to the U.N. regular budget and to U.N. peacekeeping operations accounts, after certain conditions had been certified. Among the conditions to be met was a requirement for certification that

²See Zedillo Panel (High-level Panel on Financing for Development) report, U.N. Document A/55/1000, p. 20, 49-51, 72.

³This data was presented by United Nations Under Secretary-General for Administration and Management Joseph E. Connor on February 5, 1996. His statement may be found at [http://www.globalpolicy.org/finance/docs/connor1.htm].

⁴For background information on financing the United Nations, see Cleveland, Harlan, Hazel Henderson and Inge Kaul, editors. "The United Nations at Fifty; Policy and Financing Alternatives." Futures, Vol. 27, No. 2, March 1995; and Stoessinger, John G. and Associates. Financing the United Nations System. Washington, D.C., Brookings Institution, 1964. (Esp. Chaps. 10-12.)

⁵Boutros-Ghali, Boutros. Secretary-General, in Lecture at Oxford, Speaks of Globalization, Fragmentation and Consequent Responsibilities on UN. To be delivered on January 15, 1996. United Nations Press Release SG/SM/5870/Rev.1.

⁶B.B.C. Radio 4, "The Today Programme" interview with the Secretary-General, 6:45 p.m., Sunday January 14, 1996.

⁷Ibid.

⁸Ibid.

⁹Tobin, James. "A Proposal for International Monetary Reform." Presidential Address to the Eastern Economic Association, published in Eastern Economic Journal, 4, 1978, cited in Felix, David. "The Tobin Tax Proposal. Background, Issues and Prospects." Futures, Vol. 27, No. 2, March 1995, pp. 195-208. James Tobin died on March 11, 2002.

¹⁰Mendez, Ruben. "Paying for Peace and Development." Foreign Policy, No. 100, Fall 1995, pp. 19-32.

¹¹Steinberg, Eleanor B. and Joseph A. Yeager. New Means of Financing International Needs. Washington D.C., Brookings Institution, 1978.

¹²U.S. Department of State, Daily Press Briefing, Friday, January 19, 1996. Office of the Spokesman. Briefer: Nicholas Bums.

¹³U.S. General Accounting Office. United Nations; Status of Alternative Revenue Raising Proposals. Report to Congressional Requesters. November 8, 1996. Washington, G.A.O., 1996. "GAO/NSIAD-97-31"

¹⁴This occurred, as authorized by the General Assembly, in 1947 (the U.N. Headquarters Loan from the United States) and in 1961 (U.N. bonds purchased by member States to fund peacekeeping costs). Congress authorized U.S. participation in each action.

¹⁵The Security Council does not vote on Charter amendments. Article 108 of the U.N. Charter on Amendments does not require Security Council recommendation of a proposed amendment prior to its consideration by the General Assembly. Instead, after an amendment is adopted by a two-thirds vote of the Assembly, its entry into force requires ratification by two-thirds of the entire U.N. membership, including all five permanent Council members. The effect of that requirement might be considered the equivalent of a veto, but not as a formal Council vote.

¹⁶Discussion in a July 1996 meeting of the U.N. Economic and Social Council on "new and innovative ideas for generating funds" dealt primarily with funding sources for development purposes. The resulting resolution (E/RES/1996/48, July 26, 1996) emphasized that new and innovative funding should be distinct from funding the U.N. regular budget and peacekeeping budgets and recognized that "the authority to levy taxes is the prerogative of sovereign States." This concept of "new and innovative ideas" was on the agenda for a high-level international intergovernmental event on financing for development," which was the precursor for the International Conference on Financing for Development, held in March 2002 in Monterrey, Mexico. See later in this report.

¹⁷These three paragraphs are from the above cited GAO report, p. 2. The footnotes to these paragraphs are added by the CRS author.

¹⁸Foreign Operations Appropriations, 1997. Section 581. Restrictions on Voluntary Contributions to United Nations Agencies. In P.L. 104-208, Omnibus Consolidated Appropriations Act 1997.

¹⁹Human Development Report 1999. Published for the United Nations Development Program by Oxford University Press, New York, 1999. 262 p. Available on the Internet at [http://www.undp.org/hdro].

²⁰Earlier in 1999, email messages warned of an alleged U.S. Postal Service (USPS) plan to tax email messages. According to a May 21, 1999 USPS press release, a "completely false rumor . . . claimed that a 'Congressman Schnell' has introduced 'Bill 602P' to allow the federal government to impose a 5-cent surcharge on each e-mail message delivered over the Internet. The money would be collected by Internet Service Providers and then turned over to the Postal Service." The press release continued, "no such proposed legislation exists. In fact, no 'Congressman Schnell' exists. The U.S. Postal Service has no authority to surcharge email messages . . . nor would it support such legislation." This allegation is still being circulated in 2002.

²¹Human Development Report 2001, p. iv. See [http://www.undp.org/hdr2001]. For past reports, see [http://www.undp.org/hdro/general/past.htm].

²²The Human Development Report 1999, p. 66.

²³The Human Development Report 1999, p. 74.

²⁴The Human Development Report 1999, p. 113.

²⁵The Human Development Report 1994, p. 9, 69- 79.

²⁶See the statement by Administrator Mark Mallock Brown on the UNDP web page at [http://www.undp.org/dpa/statements/administ/1999/July/14july99.html].

²⁷U.N.'s 1999 Human Development Report Raises International Tax Proposal. See text on the web at [http://www.state.gov/www/issues/un_internettax_9907.html].

²⁸American Policy Center, at [http://americanpolicy.org/un], carried at least three articles at this web address just before the meeting convened: DeWeese, Tom. "Kofi Annan: UN Tax Consultant," March 13, 2002; Henry Lamb. "Global Taxation Moves Closer," March 13, 2002; and Alan Caruba, "Slaves of the United Nations: Their Most Dangerous Meeting Ever!" See also, Mitchell, Daniel. "U.N. tax police potential." Washington Times, February 7, 2002; U.N. response: "U.N. isn't pushing global taxes." Washington Times, February 14, 2002. Letter to the editor by Edward Mortimer; and North, Oliver. "Global tax man cometh." Washington Times, January 20, 2002; U.N. response: "Global tax bogeyman." Washington Times, January 25, 2002, Letter to the editor by Edward Mortimer.

²⁹Final Outcome of the International Conference on Financing for Development. The Monterrey Consensus. Paragraph 44, p. 11 (U.N. document A/CONF. 198/3)

³⁰United Nations document A/55/1000.

³¹A/55/1000, page 26.

³²A/55/1000, page 27-28.

³³United Nations document A/AC.257/27, p.1.

³⁴Mortimer, Edward. "Global tax bogeyman," Washington Times, January 25, 2002: A20.

³⁵Mortimer, Edward. "U.N. isn't pushing global taxes," Washington Times, February 14, 2002.

³⁶Fox, Vicente. "Monterrey: A Turning Point," Washington Post, March 19, 2002: A21.

³⁷Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2002, P.L. 107-115 (H.R. 2506), approved January 10, 2002.