Yesterday the debate about tax avoidance took a new turn as Starbucks buckled to the anti-avoidance campaigners, in effect deciding they would start paying more tax than was legally due (presumably because of the risk of lower sales due to brand tarnishing). Why this ‘tax system by witch hunt’ should worry us has been covered well by other commentators here and here. In reality, the current loss of faith with the tax system is down to the law, which grandstanding politicians have full control over. Attempts to merely shame companies presents a real risk of lowering direct investment into the UK, and the corporate tax system is increasingly complicated by intellectual property considerations, which means the oversimplified argument that ‘all should pay the same rate’ simply doesn’t wash.
Aside from all that, one argument that kept coming up again and again was that this was a ‘moral issue’. On Newsnight, Giles Fraser claimed that paying tax was for the ‘common good’, and as such was a thoroughly moral thing to do. What Giles is in effect saying is that the state has precedence on rectitude – the things government does with our money is in all of our interests, whereas the company keeping money and passing through in dividends, or higher wages to employees, is second best.
Given taxation is used to fund government spending, is Giles really suggesting everything government does with our money is inherently moral? I’m pretty sure if I said something like ‘Iraq’, Giles and many other tax ”fairness” campaigners would recoil in horror. In fact, there are plenty of ways in which individuals and companies might produce significant innovations to their products or charitable donations which would improve the lot of people in this country, complete aside from any interaction with government. Likewise, there are plenty of things government does which actually detracts from the lives of its citizens.
That this leap of faith is made can also be seen by how campaigners simply dismiss what I, or others, often suggest: that we would support tax reform which lowers exemptions, deductions and loopholes but which would use any extra revenues to lower headline rates of tax, making the overall effects revenue neutral but fairer for all in terms of equalising the rates faced. This dismissal should tell us that many of the campaigners aren’t really interested in a fair tax system, in the sense that everyone pays the same rate, but instead interpret fairness to mean higher tax, and by implication higher government spending.
But let’s suppose for a second that Giles is right, and tax is recognised as being for the moral good. If this idea had mass buy-in from the public we would surely expect to see large voluntary tax donations to the state (as campaigners are demanding of Starbucks) in the public accounts, right? People would be queuing up to give extra money to such a good cause? Well, helpfully, Labour MP Gavin Shuker recently tabled a Parliamentary Question to the Chancellor of the Exchequer (which was answered yesterday) asking just that: how much was given to the state from the estates of deceased persons in 2010-11, and what the total value of payments made to the Government on a voluntary basis was in the same year.
The grand total? £1,083,537.55 - of which just £54,634.36 came from voluntary donations. That’s right, just 0.00016% of government spending for 2010/11.
So either the public don’t really see donating to government as a big moral cause, or else they think they are largely being collectively moral enough already.