Tax avoidance and government condemnation
July 25, 2012 Leave a comment
By Jake Coltman
Like most issues in modern British politics, the ongoing debate about tax avoidance and tax evasion, most recently incarnated in the form of Jimmy Carr, only skims the superficial surface of the real issues at stake. Broad moralistic claims are obscuring a debate that needs to take place, namely how the state should respond to people acting lawfully but unethically in a way which harms others.
The best place to start any systematic analysis of such a topic is by reminding ourselves what government is, and the purpose of taxation. In its essence, modern government is a collective action device. We pay taxes on almost every activity across out lives and in return we get roads, schools, policing and hospitals. When viewed like this it is clear that tax evasion, i.e. not paying tax illegally, is clearly immoral.
However, the issue becomes more controversial, and more interesting, if we remember that there is no single amount of tax which the taxman asks for. Every day in our lives we make decisions about how much tax we pay, if I decide to walk somewhere rather than drive, I reduce my tax burden by paying less fuel tax as a banal example. All the tax man offers us is a series of different options or bundles from which we select as we see fit. Furthermore, we do seem to allow some significant leeway within this set of choices. As one will read in the comment section of any article on tax, ISAs and such like are designed to reduce tax burdens, yet there is no stigma there, nor is there stigma in switching to part time to spend time with one’s child.
What then about the actions of bankers and Mr. Carr strikes us as so reprehensible? Most conversations about this subject usually boil down to something which is reminiscent to equality before the law. Many of these schemes involve moving money through foreign tax havens and expensive accountants both of which are simply infeasible for the average citizen. As a society we have decided that those who benefit most from a society have a greatest responsibility to pay back to said society in the form of progressive taxation and yet the rich liberal elite have means available to them which allow them to pay a lower rate of tax than someone on a tenth of their income.
It is this sentiment which gives Mr. Cameron’s comments so compelling. When we think of the good, honest citizen saving up to see Mr. Carr, and paying tax on the ticket, it rankles that he can put himself at one step removed from them due to his riches.
Yet I do not think this gets to the real heart of the matter. This point is open to a reductio ad absurdum in a very damaging way. Should we condemn every individual or business who hires an accountant because there are people who can’t afford accountants? Should we ostracise those who have savings accounts which require a level of capital beyond what some citizens possess? These latter seem preposterous, but it is initially unclear how we can place a firm barrier between the two.
Here lies the value of a systematic look at the issue. Contrary to the numerous cheap remarks about ISAs, there is a morally significant divide between the two types of actions, namely intention. We have no problem with the man who is too busy or too inexperienced to take care of his own money hiring an accountant, our issue with him only arises when he hires an accountant in order to free ride on the ordinary citizen. The decision to move money abroad almost always reveals an intention to deceive and to try to get as much from our country as one can while paying back as little as possible. This point is perhaps best illustrated by analogy. Consider a group of friends purchasing a meal in a restaurant together. When the bill comes the friend who has ordered the most food invests significant time and effort trying to weasel out of paying his due. Nobody likes that guy; he reveals himself as greedy, selfish and fundamentally morally corrupt, and it especially rankles when that guy also happens to be significantly richer than his fellow eaters.
What are we to do then? Clearly we should attempt to close loop holes as we find them, but historically this has had very little effect. One potential solution can be drawn from Labour’s attempts to solve anti-social behaviour. ASBOs were brought in to tackle unethical but essentially legal behaviour in local communities, and I see no reason why they should not be effectively used here too. However, even if this is not the route we wish to take, there should be a debate on how we respond to such activities. Ad hoc social stigmatization and government condemnation isn’t the way forward for a civilized society, founded on the rule of law.