David Cameron appears to have opened a huge can of worms by claiming that Jimmy Carr’s ‘tax avoidance’ is immoral. If it’s found that what he did was, in fact, within the law, this will have huge implications for the future of the tax debate in the UK.
Carr is, of course, guilty of rank hypocrisy. But claiming that his actions are immoral, and by implication tax avoidance more broadly is wrong, is a silly and irrational intervention by the Prime Minister. Every time a government seeks to put itself on a moral pedestal in this way, it is only matter of time before it is pushed off.
Tax evasion, breaking the law to shelter money from having to pay tax, is illegal. As such it has been confirmed by our legislature that it is wrong. People who engage in it can be punished accordingly, in the same way that they can be punished for GBH or burglary.
Tax avoidance on the other hand is totally and utterly legal. As Lord Clyde famously outlined in his judgment in a case brought by the Revenue against a tax avoider in 1929:
“No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow – and quite rightly – to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer’s pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Revenue.”
And yet again and again politicians and hacks come out to pontificate that whilst it may be ‘legal’ it is ‘morally repugnant’. Why?
It’s worth thinking about this for a few minutes. The implication for what they’re saying is decidedly socialist in nature: other people have a right to the money you’ve earned, even when you’ve paid all your legal dues. And more than that, the state has a monopoly of moral rectitude – anything you decide to do with your money is immoral compared to the social good the state would have achieved through utilising it.
These two assumptions are so flawed it’s difficult to know where to start.
First, it’s clear that everyone engages in tax avoidance, and as such the accusers are not being morally consistent. When I buy things in Duty Free shops at airports, I am avoiding tax. When I put money into my ISA, I am avoiding tax. When I purchase products in supermarkets that are ‘buy one get one free’ I avoid paying tax. Is everyone ‘morally repugnant’?
No. Those who argue the tax avoiders are immoral are talking about a particular form of tax avoidance: stuff that other people do which they, personally, disapprove of. We thus risk every case being discussed to death by the social conscience of the middle-class commentariat, who impose their interpretation of morality on everyone else. Rather than impersonal rules, they desire personal public vilification depending on how they feel about a particular issue. Ultimately, this is the politics of envy being endorsed by the PM.
Second, income belongs to the individual, not the state. Earnings are not collectivised. As Andrew Lilico pointed out last year, those who argue that tax avoidance is morally wrong think that the state imposing a tax on your income is deciding how much of our income to let you keep. Therefore any legal measures you use to avoid paying tax are seen as you keeping more of ‘our’ money for yourself. But this is a warped line of thinking. In reality, income is personal and activities are taxed. If I decide to change my activity legally to something which does not incur tax, then I am not liable. Those who dislike tax avoidance should therefore argue for changes in legislation to change the way we tax activities, or for laws that treat all activities in the same way.
Finally, the most disappointing aspect of this debate is the underlying assumption that the state is moral and keeping your own money legally is immoral. Is it moral, as we found out recently, that the state uses our money to lobby itself for causes actively designed to restrict our personal freedoms? Was it moral to plunder the pension-funds of hardworking individuals? Where was the ‘fairness’ in piling huge debts onto future generations? What was the ‘fairness’ dimension of the massive extension of state surveillance? More generally, the principle of any taxation by coercion (let alone avoiding legally) is morally wobbly- it amounts to confiscation to meet the priorities of those who feel their values and principles are morally superior to your own.
We should not be surprised about the view that the state is a moral bastion – it’s a direct hangover of Gordon Brown’s legacy. He believed morality could be imposed and that the state was a force for good. It’s unclear why a Conservative PM who has endorsed the Big Society should feel the same way. Why is using your money to make charitable donations, or invest in businesses, or even provide for your own family to avoid being a burden on the state, regarded as immoral?
It’s difficult not to conclude that both the Government and many in the commentariat have their thinking decidedly muddled on tax. Avoidance occurs because the system is too complicated, or rates are so high that people seek to avoid them. If you want to minimise avoidance, then simplifying taxes and lower rates, or campaign to systematically change legislation. But to vilify people who choose to keep more of their own money for personal use as ‘immoral’ is misguided, and takes us down a dangerous path towards collectivist ideology. At a time when George Osborne is trying to make the case for a smaller state for moral reasons, he’d do well to gag his PM before he speaks further on this issue.