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On the Constitutionality of Tax Treaties

Written by  Rebecca M. Kysar

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Taxes kindled the American Revolution. Revolt against collecting revenues without representation caused a tea party, propelling the colonies toward convening the First Continental Congress. Forgotten, though, is the role of taxes in shaping our fledgling nation immediately after the Revolution. Control over which governmental body could impose taxes inflamed the delegates to the Constitutional Convention. So important was the issue that the decision to originate revenue bills in the lower house of Congress constituted a cornerstone of the Great Compromise, thus birthing the representational structure of our country. This principle became embodied in the Constitution as the Origination Clause, ensuring that the power to tax would begin with the house that was directly elected and proportionate to the population.

Tax treaties (generally, bilateral instruments that mitigate or eliminate double taxation of income across jurisdictions) upset this carefully constructed intra-congressional balance. Because tax treaties are self-executing, meaning that they need no implementing legislation to take legal effect, the ratification of a tax treaty cuts the House of Representatives out of the process of legislating in the area of international taxation. This outcome, I argue, lies in derogation of the Origination Clause. Contrary to current practice, constitutional text, structure, history, and precedent, as well as normative considerations, mandate that tax treaties be implemented or approved through legislation passed by both houses of Congress.

Features of today’s tax legislative and treaty environment have made the democratic concerns underlying the Clause even more acute—in sharp contrast to those concerns motivating the exclusion of the House from the Article II treaty process, which have fallen away in modern times. Involvement of the House would legitimize the tax treaty process through enhanced democratic representation, increased deliberation, and the reduction of special interest deals. These remedies would also breathe life into the process, the paucity of which has enabled tax treaties’ circumvention of budgetary rules and has stymied discussion of purposes currently framed in century-old terms. Additionally the prescribed remedies allow the United States not only to honor its Constitution, but also to better uphold its obligations under international law by increasing the durability of its international commitments, creating more certainty for public and private actors. Finally, this analysis makes important contributions beyond the context of tax treaties by shedding light on the vexing questions of whether and when the Constitution limits the reach of treaties and when, as a constitutional matter, treaties can or cannot be self-executing.