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How Racial Diversity Shaped U.S. International Tax Policy

David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: racial diversity and tax policy. As protests in the U.S. and around the world bring attention to how institutional racism is affecting vulnerable populations, we decided to take a look at a related discussion of how representation affects U.S. policymaking, specifically the example of how racial diversity has influenced U.S. international tax policy. Joining me now by phone from his home in Virginia is Tax Notes contributing editor Robert Goulder. Bob, welcome back to the podcast.

Robert Goulder: Hello, Dave. Thanks for having me.

David Stewart: Can you give listeners an overview of this issue and who you talked to about it?

Robert Goulder: Yes, it's a fascinating issue. The title of the article is "FATCA, the U.S. Congressional Black Caucus, and the OECD Blacklist." And what the latter refers to is tax haven blacklists that the OECD circulated about 20 years ago with the idea of naming and shaming a whole list of tax havens that they basically wanted to get tough on. Much the same way the international community sort of ganged up and decided to get rid of the apartheid regime in South Africa. They had the idea what if we try to do the same thing in the fiscal and tax area? What if we did to the tax havens of the world what we did to apartheid? And that triggered a whole lot of issues that trickle through the U.S. Congress and FATCA and various U.S. Congressmen. And what we ended up doing legislatively in the U.S. With FATCA was very much a correction compared to what the OECD had originally done with their blacklist. And the person who really isolated these issues and discusses them so well is Steven A. Dean, a professor of law and faculty director at the NYU Law School graduate tax program. He's also a professor at Brooklyn Law School. And he published this article with us in July and it's been getting a lot of attention.

David Stewart: Now, FATCA and the OECD blacklists have been around for a while. How is this coming up now?

Robert Goulder: You're right. We have literally published hundreds, if not thousands, of pieces on FATCA and the OECD tax haven blacklist. The difference, I think, is what's happening in the country nationally and even internationally. We look at the murder of George Floyd in Minneapolis back in the month of May and it's ushered in a whole new era where we're looking at things differently. There's a new awareness of the need for diversity and inclusiveness in all parts of civil society, not just policing. And it's interesting when you go back and you look at this tax haven blacklist the OECD put out, where it really looks like you've got a bunch of homogeneous people sitting around the table, deciding how they're going to treat those other folks. And it just wouldn't pass muster today and it was very close to passing muster 20 years ago.

David Stewart: Well, all right. Let's go to that interview.

Robert Goulder: Professor, thank you for joining us.

Steven Dean: Thank you for having me. I'm really excited to be here.

Robert Goulder: Professor, your article looks at these two major international developments: the OECD tax haven blacklist and FATCA. And I'd like to look at them in chronological order. Obviously the OECD tax haven blacklist comes first. So, we're talking about the time period in the late 1990s and the early 2000s, whereas FATCA is about 10 years after that. And these are topics that our publication Tax Notes has published countless articles on these things, but none of them have been quite like yours. And they're not exactly new things that were just happening. What inspired you to write about this now?

Steven Dean: Well, it's an interesting story and thank you for asking. I wrote about this now because I've been thinking about it for 20 years. And in fact, I tried to write about it before, but I don't think it came out quite right, or as clearly as I intended. And the specific genesis of this piece was I got a request from a journal in Europe for my perspective on where U.S. tax policy was and was heading. And I was in my apartment in Brooklyn in March and April as the pandemic hit the city and this is what came out. It was not really what I started out trying to write, but I think in that moment, it was just -- it came out more directly than I think it had in the past.

Robert Goulder: Before we discuss the role that racial diversity played with these two projects, let's just look at the back story here. For the OECD and this controversial tax haven blacklist, they come out and they sort of name and shame these 35 countries that go on the list. What were they thinking? Why did the smart people at the G-7 or the OECD, why did they decide it was a good idea to sort of out of the blue declare war on tax havens?

Steven Dean: Yeah, it's a very interesting question. The short answer is I don't know, and the slightly less short answer is everybody agrees with them by and large. I think when this was happening, this was roughly around the time that the protests against the World Trade Organization were happening. Not exactly the same time, but roughly. So there was a real movement around international affairs that had what you might call today, a base of the pyramid orientation and tax turned out to be very different. So, rather than a base of the pyramid or orientation, thinking about global labor and the environment, what came out of the concern over globalization and tax and the implications for society was the sense that a lawlessness was really the threat. So, it wasn't a systemic problem. It was this lawlessness. And I think that the consensus in the international tax field was that this was correct.

Everything that we were doing in international tax was perfectly fine. Capital import neutrality, capital export neutrality were all the theory we needed. And if not for this handful of states that were standing in the way of progress, we could really have something beautiful. So, one of the last times I went to the National Tax Association Conference and presented something related to this, I had somebody come up to me and say, "Why don't we just invade tax havens? Why we just do that? We could totally do that." And I thought to myself, "I'm not sure I'm coming back to this conference again." And it was really quite a moment for me.

Robert Goulder: Well, from my own personal perspective, I was covering this as a junior reporter for Tax Notes at the time. And like a lot of other people, I was kind of in a quandary when the list of the 35 countries came out. Because there were some obvious countries that I would have thought as tax haven jurisdictions that were not included on that list, including first and foremost, Switzerland, famous for its bank secrecy. And bank secrecy and tax evasion sort of go hand in hand.

After all, we have a system that's largely built on self assessment and self reporting. Now that's totally different with U.S. banks. If I take money and I put it in the bank down the street, there's going to be third-party reporting, so I don't really have an incentive to conceal that income when it's time for me to fill out my tax return. But if my money's in the foreign bank and there's no reporting, and there's no withholding, that seems to sort of pave the way for people playing fast and loose with reporting their offshore income. And Switzerland just comes to mind. I'm not picking on the Swiss, but they are famous for their bank secrecy regime. And the fact that Switzerland was left off the list struck me as sort of saying that, "Do politics have more to do with the identification of these countries?" You know, politics over policy? What was your take on that?

Steven Dean: For me, I have to put my cards on the table. I grew up in the Bahamas, a notorious tax haven. Also lovely place to spend a childhood. And when I thought about all these issues, you quite correctly described them: the lack of information from overseas and the abundance of information domestically and the way that we had been dealing with these issues. It really did strike me when this was going on, that the states that were on the list were certain kinds of states and the states that were not on the list were different kinds of states. So, my late father had maybe five jokes total, and one of his favorite jokes was, "Steve, what's the biggest tax haven in the world?" He had a very deep voice. "The United States." So there were other states that could have been on the list I'd say still. And certainly now with it being a holdout from the global automatic exchange information program that we have now to some is probably one of the biggest problems.

And so it really didn't add up to me. I always say that if you think the Bahamas has ruined your global tax system, you have a pretty terrible global tax system because they're a small country with few resources and certainly no ability to provide 1099s to the IRS of the kind that we're used to getting.

Robert Goulder: Well, no argument from me there. I like the ad when someone asks, "What's the largest tax haven in the world?" And you say, "Oh, it's an island. It's a Manhattan." So there you go, yes. But a country with the economic power and diplomatic clout of the United States is never going to be on one of these blacklists ever, really. It really just smelled like a bunch of big rich countries pushing around small poorer countries, telling them we were going to sort of badger you and force you and coerce you and shame you into changing your fiscal regime.

At the same time, I'm no fan of tax evasion. I think everybody should pay their taxes, but there was something unsettling about all these big countries picking on small countries. Now, despite that, this project in the late 90s had the support of the Clinton administration. The Treasury secretary at the time, Lawrence Summers, was a fan of it. The U.S. was actively supporting it over at the OECD in Paris. They were big fans of us. And then we had the famous elections in November 2000. New presidency comes in -- the Bush administration -- and they sort of initially are cool towards it. But eventually after a year or so, they start to distance themselves. There's a very different feel between the Clinton Treasury and the Bush Treasury. And part of that was a letter-writing campaign. What was going on with these letters?

Steven Dean: So, what's interesting about the letter-writing campaign you mentioned is in part the timing of it. So Tax Notes, as you know, because you were probably engaged in some of the reporting, did a wonderful job of reporting all of this at the time it was unfolding. And the letters that were being written were covered in great detail, but even still, some of the nuance was lost. So, as you correctly point out, the Clinton administration supported this effort. And when the Bush administration came into office, there was some uncertainty about what they would do with respect to this. And there was quite a big push, especially from the right. Organizations like the Heritage Foundation made a big effort to derail this effort and to persuade Paul O'Neill, then Treasury secretary, to withdraw support for it. And that's all I think, quite predictable. Right? We can all expect the Heritage Foundation to lobby the new Bush administration to not support this pro-tax measure.

And what surprised a lot of people, and frankly confused them, is that one of the most influential letters came not from the Heritage Foundation or from another actor in this, the Center for Freedom and Prosperity, but from the Congressional Black Caucus. So this is congressional members who are black, both from the House and Senate, and they are not all Democrats, but they mostly are. They're not required to be Democrats. And nobody could figure out why a group of Democrats would write what seemed to be interesting articles written contemporaneously about this, suggesting that they had betrayed Rosa Parks by writing this letter.

And I think what's interesting about the story you're telling, Bob, and the story that I'm telling is that it doesn't have to be people acting out of bad faith. I think that even the fellow who came up to me at the National Tax Association suggesting that we should invade my home, I think, was coming from a good place. There's a real fundamental lack of understanding. What does it mean to put a country on a blacklist? What does it mean to say that another country should help the United States enforce its income tax? And one of the interesting things about the Congressional Black Caucus is obviously its members are black and that should not necessarily give them a special insight into what it means to be a country that is small and relatively powerless, but sometimes it does. So, in instance, one of the letter writers, and really the author of the letter, although they're not the most influential signatory, was a congressional delegate, not a representative, but a nonvoting delegate from the U.S. Virgin Islands. And you note that because Virgin Islands was actually on the blacklist. So, it wasn't even -- there were questions at the time and sort of the authoritative histories of the moment suggested the Congressional Black Caucus were just confused or maybe didn't understand this complicated tax stuff well enough to really express their views clearly.

But if you put a district of somebody in Congress on a blacklist threatening sanctions, they're not going to be happy. They're going to get their friends to also write angry letters on their behalf. So, one of the most prominent letter writers was Charlie Rangel, who served a generation of black tax lawyers and to many others was really a hero. He was a powerful force in Congress for many years, but to those in particular. And when the delegate from the Virgin Islands got some, but not all, of the Congressional Black Caucus to sign onto a letter to Paul O'Neill asking them to reconsider, that really had a big influence. It really had an impact that many other members of Congress would not have had.

And it was interesting to understand for me, part of this, writing this article, I looked back at what Charlie Rangel was doing at around this time and not exactly the same time, but pretty close to it. He'd been working on a free trade agreement with Africa. So it wasn't as though he hadn't been thinking about this. And oddly that's relevant because one of the countries named on the list was Liberia, that I happen to know from some pro bono work. I had a Liberian asylum client who was fleeing just an incredibly violent and frankly, scary civil war and was seeking asylum in the U.S. at around the same time that the OECD was putting Liberia on a blacklist for not cooperating with tax evasion. And of course, Charlie Rangel would know this, not because he had any special insight because of the color of his skin, but because he happened to be working on this Africa free trade arrangement and he would know how silly frankly, this was. So I can't speak for everybody, but I am confident there were many people who are acting out of good faith and just looked at a list of countries that did not have income taxes.

I'm sure Liberia did not have a well-functioning income tax while it was engaged in this brutal longstanding civil war. And you look at that and you think, "well, that's probably a country that is not having good impact on our income tax because they don't have one." And it seemed quite reasonable to, I think, a lot of the folks involved to have a list that included Liberia. I can't speak to why Switzerland wasn't on the list, but this was of course before the diamonds and the toothpaste tubes made it undeniable that Switzerland was not just a tax haven in historical sense, but in a really current and relevant sense.

And that's really part of what I want to convey in the article. That when you think about these issues, to me, end up on the wrong side while acting in perfectly good faith. I think a lot of folks who think that tax havens are really the problem, and this is not a problem that could be solved within the OECD without help from other states, I think truly believe that, and don't have any racial animus or any xenophobia. I think it's just hard for them to picture what a very different country looks like. And I'll give you an example of what that means.

So, Professor Wei Cui, so he's going to be on my podcast, and one of the articles he wrote that he talks about is -- it gets called, "No Taxation Without Information." And in it, he draws on his experience with China. So, he's done a lot of work consulting with China, with a senior attorney, with the China Investment Corporation, I believe. And he notices as well from a very different perspective, so from a very large country. And the observation he made, which has been quite controversial among people who think about this a lot, that the focus on third-party information reporting is not misguided, but viewing information as both a necessary and sufficient source of tax enforcement is just missing something.

So, he notes that a lot of the folks that he would speak to in China would assume that if the U.S. has a really well-functioning income tax and it's because they have a lot of information, it must be because the IRS has access to everybody's bank accounts and credit card records, and just all that information about us. There's just a misunderstanding about what information is and what it does. And what Professor Cui points out is that information in the absence of the institutional structures -- the large organizations that do a lot of withholding reporting and have a lot of skin in the game and are going to cooperate -- without all that institutional framework, information alone is not necessarily sufficient. And where he gets into trouble more than I think he meant to was those who think he suggests that it maybe isn't necessary for a well-functioning income tax. That to me is less obvious, but I certainly agree with him that it is not sufficient for a well-functioning income tax.

Robert Goulder: I remember distinctly when the letter from the Congressional Black Caucus hit and we published it. I think it was the next day I ended up having lunch with a colleague from the NGO community. They like to refer to themselves as sort of the do-gooder community. And they're great folks with a lot of what they do, but I won't name them here for the sake of embarrassment. But the whole conversation at lunch centered around this idea that the Congressional Black Caucus somehow got duped, that they got talked into doing it. And if they somehow were more savvy, they would have been on the same side as the NGOs. And that struck me -- the word that comes to mind is condescending. You don't think the Swiss Bankers Association got duped into something, but you think the Congressional Caucus got duped into something and they're taking the same position complaining about what is fundamentally an imbalance of power. I mean, Switzerland's not on the list. And Liberia is? That is fundamentally an imbalance of power, not a level playing field at all. So, what was your thinking on this whole aspect of looking at the CBC letter as if -- in a condescending context? I mean, it's a little bit aggravating. It must be.

Steven Dean: Well, I must say as a Black American who grew up overseas, that's not that shocking. I'll tell one more story about my dad. So, he used to travel a lot for business and would end up in the U.S. traveling. And one day he just happened to drive through a red light and an officer pulls him over and he pulls out what then was the Bahamian driver's license, which was really just a piece of paper with -- not a sort of an official looking driver's license from our point of view. And the police officer saw this and said, "Oh, OK." And then just takes a minute to explain to Dad, who had lived in the States for many years, how a traffic light works and red means stop, green means go. And Dad taking a minute to take all this in. He can't quite figure out what's going on, and before he knows what's happened, he's been sent off with a warning. So, I personally was not shocked by that level of misunderstanding. And I think it really is misunderstanding. And that's what to me is so frustrating.

And so there's very little good about the current era coronavirus. The Black Lives Matter movement is a response, something truly awful, unspeakable, but now we're speaking about it. And what I'm finding quite encouraging about all this is that people are open to this conversation. People are now ready to have these conversations so that when we realize that -- have the conversations about Black Lives Matter, how can Black people not want to support the police? Because the police keep them safe from crime. You know, it's just complicated. And I think that when people read the CBC letter and didn't rewind two days to get the letter from Donna Marie Christian-Christensen, the U.S. Virgin Islands delegate, which she sent on her own, that would help provide context. There was a sense that, and I hate to put it this bluntly, but Black people are poor. Why would they not want rich tax cheats to be caught? And it's just more complicated than that. I think that as we'll discuss in a bit, there are other ways to solve the problem that don't involve that kind of just profound misunderstanding.

Robert Goulder: Exactly. I mean, going back to the things the NGO community was saying at the time. I remember that the person said, "Look at Charlie Rangel. Look at his congressional district. His duty is to his constituents, and his district included the Harlem section of Manhattan." And he's like, "Harlem is not on the OECD blacklists. What does he have to worry about?" Just a very narrow perspective, but we move on.

And what I think the importance of that letter can't be understated. A lot of people when they look at the U.S. pivot from the Clinton administration to the Bush administration, they think "Gee, if it wasn't for those 'hanging chads' down in south Florida in Palm beach, if Al Gore had won Florida, this whole process would have been different. The U.S. would have adhered to the blacklist and supported it." I don't see how that happens. If you had a Gore Treasury, how do they still embrace that when you've got the letter there signed by Charlie Rangel? I mean, it's one thing for then-Treasury Secretary O'Neill to get a letter from the Heritage Foundation. How can he be outflanked on the right from one of the senior Democrats in the House?

Steven Dean: That's certainly true. And I think what's important to remember. And this also, I think, is not often kept squarely in mind, a blacklist is a blacklist. What was interesting about what the 2000-2001 era effort was it was not just a blacklist. It was a blacklist that was meant to be paired with sanctions. And that's a different kettle of fish. So when you're going to put countries on a blacklist, I think there's a certain sense that there's nothing we can do about that. People still do that. The EU currently still is engaging in the same sort of blacklist and effort, and that's not great. But at the time, there was an implicit threat, and it was just barely implicit, that the sanctions were going to be really harsh. That the sanctions that they had in mind were wide ranging and potentially devastating.

So, and I think that often gets lost. Could I imagine a Gore administration supporting blacklist in which there would not have been a real threat of potentially devastating sections? Maybe. It's just hard to say. Could I imagine a Gore administration supporting a blacklist that knocked off Liberia and added Switzerland? It's really hard to say. That would really telescope a decade of history that we got thanks to, I think in part, the UBS scandal. Right? So the really clear instance of Switzerland engaging in Swiss banks, not Switzerland the state, because that is also part of the dynamic here with the 2000 effort, that rather than focusing on private actors, they were in countries doing things we disagree with. One of the pivots that brought about the blacklist and this focus on states was the sense that the states themselves were driving it and profiting from their status as tax havens.

That is certainly not true. I mean, there are plenty of people in the Bahamas that don't have running water. There were plenty of people living in poverty and helping the U.S. enforce its income tax is not going to get them running water. It's not going to get them any of the other basic needs they need met. So, what could have happened under a Gore administration? It certainly would have played out differently. And I think that there might have been a blacklist, but just sort of a deescalated blacklist, or perhaps a remedy blacklist that included Switzerland and not Liberia. Those kinds of things might've happened in a world where more people were talking.

I do want to emphasize that I think that for so many people involved in this, everybody was trying to do the right thing. Your NGO friends, I don't think anybody is on the wrong side. I don't think anybody is out to do anything terrible. I think everybody wants the best for those they care about, but there's just a misunderstanding. I mean, I can't say that if I hadn't had that Liberian asylum client, that it would have been as obvious to me that this was ridiculous. From the vantage point of 2020, when we've had the diamonds-in-a-toothpaste-tube scandal, it just is absurd. But at the time, you would have had to have a conversation with Charlie Rangel about this before it was too late to really save this. And I could imagine that happening in a Gore administration. And there was the period after the election, before the turnaround, when those conversations didn't happen. And that may have been the problem.

Robert Goulder: You mentioned the UBS scandal, which shed a tremendous, very, very public spotlight on the role that Swiss banks played in facilitating U.S. tax evasion. At that point, the horses had escaped the bar and there was no getting them back in, especially with the financial crisis. It really felt like Congress had to do something. So in 2010, we get FATCA, the Foreign Account Tax Compliance Act, signed into law by President Obama. And I think in your piece, you describe that as responding to an incomplete global market for tax information. Can you elaborate on that theme and how FATCA asserted itself in a way that no other statute had done before that?

Steven Dean: Sure. As I keep saying, one of the great things about going back in time is you seem really smart, right? You have all these insights. And at the time it was pretty hard to understand what was wrong before FATCA, which is why some folks thought that Liberia was the problem when it clearly wasn't. It would be silly to conclude that everybody's acting from a bad place who decides that Liberia is a problem. But I think that at the time before FATCA, I described in that article, and years before FATCA as an incomplete global market for tax information, really laid out the differences between the kinds of information -- automatic current information we're getting from domestic third parties and the old system, which was a state-to-state barter method, where in order to get an exemption from withholding tax from the source state, you would provide, say a W-8BEN. Old timers like me remember this. So you provided that to say France and France would collect all this information. And then if it was really a super slick country who put it on a magnetic tape and send it back to the U.S. And that information that we were getting bartering with other states was really just not an effective compliment to the domestic information that we were getting from third parties.

So that was the world we were living in, where we are really just flailing, perhaps in good faith, perhaps not, but trying to figure out some solution to the problem. And that was where Obama and Rangel stepped in. And in Obama's campaign, he spent a lot of time talking about wanting to not reward companies that ship jobs overseas, which to a tax expert, doesn't sound quite right, but certainly I think it marked his focus on tax policy and the importance of it. And in the run up to FATCA, you can see a new recognition that what was lacking in the international sense was a real analog to third-party facial reporting, right? That was what you needed.

And one of the really fun things about looking at this again with the benefit of hindsight is the question was how to do that, right? How to get that third-party information from overseas. And I'm just speculating here -- but that's the fun of being a professor; you can guess based on the information you have -- and thinking about the revenge of Charlie Rangel. So, in 2000 and 2001, he was dismissed by even folks wearing white hats, as at best a dupe for Switzerland. I'm not sure quite who he was a dupe for, but that was sort of the consensus. And when you rewind even further, Charlie Rangel and the Congressional Black Caucus had had a really marked impact on the end of apartheid in South Africa.

And I know this seems like a really big leap, but bear with me. So, one of the efforts that really had an impact, so, you know, Charlie Rangel, along with many others, got arrested in front of the South African consulate in New York. This is just a thing that many people did, but not many people were Charlie Rangel. Not many people had the influence that he had. And in Charlie Rangel's autobiography, he mentions that in conversation with Nelson Mandela, Nelson Mandela pointed out that a U.S. law denying foreign tax credits to businesses operating in South Africa was known in South Africa, not just as the Rangel amendment, but as the "Bloody Rangel Amendment," because they really didn't like it very much. And this sense that if you want things to happen, you can get yourself arrested, right? You can write angry letters and those things can help, but why do you threaten people's tax credits?

Or as in FATCA, and I do think this as sort of more of an empty threat in reality, but why not threaten to hurt banks? And say, "If you don't help us with the information we need, we are going to -- and there is some irony here. I get it -- impose, essentially, sanctions on non-U.S. financial institutions that refuse to provide information." And I understand this is controversial. This is not something that everybody agrees with that. And I've gotten a lot of reactions, got some oddly racist reactions to the piece in Tax Notes, but I've also gotten reactions from folks who are not fans of FATCA who think I am a fan of FATCA. And I'm not sure I am a fan of FATCA, but I prefer FATCA very much to imposing sanctions on Liberia to fix our problems. If I had to pick between those two, there is no hesitation in mind which of those two I would pick.

I think FATCA is not entirely without fault, but the element that I think is really quite elegant here is the connection with the "Bloody Rangel Amendment." So, if you want action, right? The thing to do is not to create a blacklist of countries that can't solve their own problems. That's not going to get the job done. What may happen, and this is something I proposed in that article you mentioned, "Incomplete Global Market for Tax Information." I had been somewhat naively said, "Well, if cooperation from these countries will help us bring in billions of dollars, which their GDPs are a small fraction of that. Why don't we offer to share the increased revenues with those states?" And nobody liked that idea. I mean, that's fair. But a much better idea was, "Well, why don't we really use the logic of the 'Bloody Rangel Amendment' to get the attention of banks and say, 'Listen, we would very much like this information. Charlie Rangel would would really like this information. Obama would like this information. And Harlem would like this information. So if you don't give it to us, we happen to be in charge of Congress. And we were going to do something about it.'" So, you may not like the tool that, you know, Rangel and Obama and many others chose to get the information that your NGO friend had wanted them to have.

But I don't think it's fair on the other hand to call Rangel a dupe on the one hand for not being tough enough on this issue, but then to not acknowledge when he finds a way to not just be tough, but tough and effective. I was not in the room. I don't know who said what. And in the piece I tried emphasize that what is useful to take away from this whole episode is not that Charlie Rangel is the smartest tax policy expert ever. He may be, but that's not really the point I wanted to make. What I wanted to make was that social science has emphasized for decades that what diversity does -- diversity is not good because Black people are better at tax policy than white people. That's -- I don't even believe that. I don't believe they are worse. I don't believe they are better. But what it does is, and there are people who study this, who've shown this. It makes us think more creatively. Right? It makes us abandon our preconceptions. It helps us reduce errors. In studies of juries, they show that diverse juries deliberate longer, and not because they're doing a worse job. But because they're doing a better job. They make fewer errors. They reach better conclusions.

And this is the element I like to tease out of this story is, is Obama better at tax than somebody else? I don't know. Is Rangel better at tax than somebody else? I don't know. But it's certainly worth noting that when you bring in a diverse group and when you have two Black people involved in tax policy, that is certainly going to be diverse, something interesting could happen, right? Something interesting could happen. Is it going to be perfect? No, and FATCA certainly isn't. But I think it's important to acknowledge that getting a new group together to think about an old problem gives you a better chance of coming up with a new solution than just getting the same team back together who are going to rehash the same ideas, again and again.

Robert Goulder: Very well said. And I don't think there's any denying that automatic exchange of information as opposed to on-demand, on-request treaty-based exchange of information certainly is one of these bold ideas. The ultimate vindication of that is that FATCA was very abruptly copied. The OECD sat down and looked at it. They wanted to replicate it. I think all of the European member states were a little bit jealous. They had what we call the FATCA-envy. "We want this." So the OECD came up with the Common Reporting Standard. And now this idea that we can thank President Obama and Congressman Rangel for is in a different form through the CRS. It's been adopted in many, many countries all over the world. It's actually an example of U.S. exceptionalism that we're about the one industrialized country that's not using CRS because we sort of got the ball rolling with FATCA. So ironically, we're sort of an outlier because we were the first folks to do it.

But, I wanted to conclude with this question, professor. Are we in a better place now in terms of international policymaking? And I'm not sure we are. But all of our readers have been obsessing with the OECD BEPS project, and rightfully so, for several years now. It started back around 2013 or 2014, these 15 action item reports. And a lot of things came from it. You know, we have country-by-country reporting now. But what we like to call BEPS version 2.0, is this red-hot raging debate going on right now about what to do with taxing profits within the digital economy. And that's not what this podcast is about. Because we've had countless podcasts on the digital economy already, but it's this.

Whereas 20 years ago, with the tax haven blacklist, those were the 30 or so OECD members states were the richest countries in the world. And they were in the room. They had a seat at the table. And they thought that the blacklist, picking on poor little countries that are smaller than them, was a great idea. If you fast forward to today, the work being done, sort of under the auspices of the OECD, is really being done via this thing called the inclusive framework, which is now I think 137 different countries. Everyone from India to Bangladesh to Brazil, countries that are not proper OECD member states. So, you look at these pillars and they're envisioning a transferring of juridical taxing rights from source countries to resident countries -- although they're labeling them market countries now rather than source countries -- but it's sort of the same thing. Do you feel like we're in a better place in terms of diversity and the representation of a broad grouping of interests because the work is being done through the so-called inclusive framework?

I mean, maybe it's not. As you said, I'm not in the room. It could be the case that Bangladesh has a chair there and they've sent a representative from their finance industry, but when push comes to shove, it's still the U.S., U.K., Germany, and Japan that are calling the shots and making the big decision. So, I don't know how it all plays out behind closed doors. But there is a thing called the inclusive framework and it does claim to have 137 different countries. Do you think they've learned the lesson? Do you think we're in a better place?

Steven Dean: So the answer is yes and no. I'm a professor, so I say things like that a lot. So, I think we're in a better place in some ways and exactly in the same place in others. And when you turn the clock back to again to 2000 and 2001, if you think about the kinds of things that the Zedillo report was recommending. So, they recommended in 2000 that there be a U.N. international tax organization. And the kinds of things that they wanted the U.N. international tax organization to do were sort of dismissed by, certainly by the OECD, but by others. And it's really just sort of duplicative of the OECD. And I think you see with contemporaneous efforts of the OECD that that was not really true. I can't quite see the U.N. making the mistakes that were made that set international tax policy back a decade, one might argue.

So, I think that having what amounts to a focus group for the OECD to test their ideas is going to catch mistakes like that. That is not going to happen again. I don't think the OECD is going to issue the threat of economic sanctions on Liberia, but not on Switzerland. So, that's definitely not going to happen. But I think, and I argue this in a much longer than the Tax Notes piece paper with the traditional hundreds of footnotes in the law review article style, that what we really need is something entirely new. Right? So, what we're getting with BEPS is an opportunity to shore up a system that is obviously struggling. Right? So, that was clearly what the original BEPS, BEPS 1.0, was designed to do. It was sort of like an uber-CFC regime meant to do what we've been doing forever just a little bit better.

And in the super long law review article, I note that the structure of international taxation can trace it all the way back, not to a hundred years ago, but to Roman law. This concept of numerous clauses. The number is closed. We divide everything up into interest income, business income, royalties, and so on. And then just what we do with covenants and fee simples and all of this and real property. And then we assign ownership to different states with all our tiebreaker rules that we know and love in international tax. And that system absolutely doesn't work.

So, what we're getting now with the digital space is the promise of adding a new category, right? So, we're still going to have the same classification assignment, numerous clauses approach, but we're going to have the shiny new category next to the categories we've had for the past hundred years. And we're going to call it digital age -- I'm not sure, digital something. And, you know, unfortunately, to me, that is not going to work for all sorts of reasons. There are questions of legitimacy. They are questions of efficacy. I think one of the things that's driving the debate currently is that you have, for the first time, a real wedge between the U.S. and the European Union. That was not true before, even throughout all the failures of the classification assignment, traditional League of Nations-based international tax system. The U.S. and the EU were generally on the same side. They were the source of all the multinationals. But today there's this friction. We have a trade war. We're about to have sanctions imposed on French handbags and French cheese, and a French digital services tax. So, could a digital services tax broker a truce between the U.S. and the EU? That's possible. It's not clear that it will. And it certainly doesn't look that way lately, but it's certainly not going to fix the basic structural problem of the classification assignment system, this Roman law numerous clauses problem.

So, I think getting back to the question of whether we have a more inclusive process. I think that's really the key. I think the key is that in order to get real change here, we need not the OECD with a focus group, but we need to really shift power so that the different group is able to set the agenda. And if I were to choose who would be sharing power with the OECD to set the global tax policy agenda, I might pick the Congressional Black Caucus. I mean, they've got a lot of their plate now, but they've proven themselves to be a group that understands U.S. politics, and the U.S. is very important here. But they also have a different perspective on the world than a lot of other groups, and if they can claim any share of the credit for the "Bloody Rangel Amendment" and some of the credit for FATCA, I think that's a pretty strong resume. So, I'm not officially suggesting that the Congressional Black Caucus replace the OECD as the global tax policy making body, but maybe I am.

Robert Goulder: Well, their track record to date is impressive. Professor, once again, thank you for joining us. This article has given us a lot of food for thought. Just to review the title is "FATCA, the U.S. Congressional Black Caucus, and the OECD Blacklist." It appeared in Tax Notes in our July 6 edition, and there'll be a link available to it. Thank you for everything and sharing your time with us today.

Steven Dean: Thank you very much, Bob.

David Stewart: And now coming attractions. Each week, we highlight new and interesting commentary in our magazines. Joining me now from her home is Acquisitions and Engagement Editor in Chief Faye McCray. Faye, what will you have for us?

Faye McCray: Thank you, Dave. In Tax Notes Federal, Donald Susswein and Ryan McCormick consider how Congress could tax cancellation of debt income. Jiyeon Lee-Lim examines potential federal income tax consequences of committed debt financing structures. In Tax Notes State, Ronald Fisher and Robert Wassmer discuss state and local spending on the criminal justice system. Jennifer Karpchuk interviews Philadelphia Revenue Commissioner Frank Breslin. And on the Opinions page, Robert Goulder shares insights on his tax career and writing tax. Benjamin Willis argues that payroll tax cuts could aid individual taxpayers and help avert an unprecedented depression. Kimberly Clausing and Robert Goulder discuss the role of business taxation in economic recovery. And now for a closer look at what's new and noteworthy in our magazines, here's Tax Notes Executive Editor for Commentary Jasper Smith.

Jasper Smith: Thanks, Faye. I'm here with Lucas Carvalho, who is a professor at the Brazilian Institute for Tax Law and the University of Fortaleza in Brazil. He's going to talk a little about his piece titled, "The Trouble With ‘Pillars’ in International Tax Policy." This was recently published in Tax Notes International. Lucas is joining us from his home in São Paolo, Brazil. Welcome Lucas.

Lucas Carvalho: Thank you for having me.

Jasper Smith: Can you give our listeners a brief overview of your article?

Lucas Carvalho: Sure. In this article I write about the pillar-building narrative that is taking hold of international tax policy in the last year or so. Pillars discussed at the level of the OECD and at the level of academia have their merits. And yes, they're open to public scrutiny. But they should not be used to push countries into a state of manufactured consent about solutions for problems with international tax law. In the article, I explore features of the official OECD pillars, pillars 1 and 2, but I also talk about pillar 3, which was proposed recently by Allison Christians and Tarcísio Diniz Magalhães, and pillar 4, which was proposed recently by Nathan Boidman, which is basically a counterpoint to the three previous pillars. The idea is that any solutions that we design to reform international tax law should always be discussed and agreed upon by countries that are fully aware of their impact for their own domestic tax policy. And that's the gist of the article, really.

Jasper Smith: Was there anything in particular that led you to write about this topic?

Lucas Carvalho: I got the idea from an article that I wrote about six to seven years ago about the BEPS action plan and the power struggle between developed countries and developing countries in discussing solutions for international tax law and policy along the lines of the BEPS action plan. And I compare that to a chess match. And if you play chess, you know, that there is one type of checkmate known as the scholar's mate, and that checkmate relies on the inability of your opponent to see that you're preparing the checkmate in four moves.

Essentially, what I said in that article back then was there was an imbalance of political power in the discussions around the BEPS action plan that could lead to solutions that would not serve the interests of developing and underdeveloped countries. After the BEPS action plan came to fruition, and the final reports were issued, I saw that the results were suboptimal and several of the actions failed to reach consensus, which kind of proves my point in that article. But I can see the same pattern emerging now of discussions between parties and subjects, tax authorities, with different levels of political power. And those discussions will perhaps not lead to solutions that fit the interests of everyone involved. So that's where it came from. Also, it came from reading the 1988 book of Noam Chomsky and Edward Herman about manufactured consent. I used that to discuss problems that I see with discussions around international tax policy today.

Jasper Smith: Thank you, Lucas. That was a really good overview. I think that was insightful. And I think that if audience members haven't read it yet, they certainly will look forward to it. Can you tell our listeners where they might be able to find you online?

Lucas Carvalho: Sure. My articles, the Tax Notes International, may be found on the website. You can go to "Meet our Columnists," and you can go to the section of Tax Notes international. My articles are all there. But you can always find me on LinkedIn. That's the social networking website that I use. Go to and you'll find me. You can always talk to me about issues around international tax law and policy. I'm happy to discuss.

Jasper Smith: Wonderful. Well, as Lucas mentioned, you can find his article at And be sure to subscribe to our YouTube channel Tax Analysts for more in depth discussions on what's new and noteworthy in Tax Notes. Again, our YouTube channel is Tax Analysts with an S. Back to you, Dave.

David Stewart: You can read all that and a lot more in the pages of Tax Notes Federal, State, and International. That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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