Tax avoidance is not immoral

Ryan  Bourne

by Ryan Bourne

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.

 

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Comments

Anonymous - About 885 days ago

I'm a huge tax avoider, a veritable menace to society; I'm currently munching on Jaffa Cakes, rather than their VAT-attracting cousins, digestives, in order to avoid paying tax. A moral monster, maybe, but one with 20% more to spend on biscuits.

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Anonymous - About 885 days ago

Could not agree more Ryan. By DC's reckoning, surely everyone on lower rate tax bands should be offering to pay higher rates, as to continue paying the minimum would be morally wrong...

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Anonymous - About 885 days ago

You seem to mix up morality with legality.
Apartheid was legal in South Africa but cannot be described as moral.
We need to distinguish between those transactions whose sole aim is to avoid tax from those which Parliament intended like Pension provision and capital allowances.

Some tax avoidance is immoral.

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Anonymous - About 880 days ago

I couldn't have put it better myself.
This piece is absolutely spot on and it should be brought to David Cameron's attention. If he doesn't like the taxation laws, he should change them as he is in a much better position to do so than the rest of us. And who are parliamentarians to talk about moral repugnance after the revelations about MP's expenses under Michael Martin's regime. Now that really was repugnant.

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Alistair Blair - About 866 days ago

It is preposterous to suggest that buying a bottle of duty free - an option open to 80% of the population - is on a par with contriving to avoid six or seven figure tax bills - open to 1%.
If wealthy people pay big bucks to clever accountants to create contrivances enabling them to avoid tax and "keep more of their money for personal use", that activity is near enough immoral as makes no difference. It means other people have to pay more tax. Shirking your responsibilities so that others must pick them up - that's immoral.
And they are contrivances. Stick this "change my activity legally to something which does not incur tax" guff up your jumper.
I do not believe your founder Mrs Thatcher would have approved of this kind of behaviour.

You say that to nix this activity, the government should rewrite the tax system. This adds a veneer of respectability to your argument, but it is impossible, isn't it, within the timeframe of any government? It would be nice but it is not realistic.

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Ryan Bourne - About 865 days ago

Alistair - your argument appears to be: tax avoidance is only bad if it a) is not open to everyone to do it, b) is for large amounts of money.

That doesn't seem very principled to me.

Chris Rickard - About 863 days ago

I think this whole sorry affair has only served to highlight the economic naivety of David Cameron, George Osborne and HM Treasury. The logical corollary of what they are saying is that all the accountants and tax advisers who devise and implement these schemes are also immoral - most of whom I suspect vote conservative (until now, perhaps). Its obviously difficult in Coalition but the simple fact is that neither the Gov, HM Treasury or HMRC have yet realised that high tax is an incentive to engage in tax avoidance and the complexity of legislation and myriad of exceptions is a manna from heaven to professional advisors. The answer is, as you suggest above and as Nigel Lawson disccovered years ago, to reduce the rates and simplify the legislation so that there are not the myriad of exemptions in certain circumstances.

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Matthew Green - About 853 days ago

You are trying to oversimplify a complex moral issue. The public is reacting to stories that many rich people are paying a low overall rate of tax, leaving more to be collected from the "squeezed middle". Society cannot function without taxes, so it's no use whinging about "it's my money". And morality and legality are two different things.

Of course the government's pronouncements take it into some rather undefined and dangerous territory. But the the counterargument to simplify the tax system don't hold water either - as it is usually about squeezing the middle even harder.

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Anonymous - About 429 days ago

I don't know who you are or what exactly is going on across the pond. I do know that the people who heed your advice will be spared the hardships of collectivism. I'll pray the fruits of your efforts are visibly abundant. Keep up your great service to humanity, and thank you.

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Tits McGee - About 310 days ago

Thanks for stopping by David Cameron.

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