Claims that tax avoidance is morally wrong are immediately countered by claims that no-one pays more tax than they have to and, its more specific companion, we’ve all paid the builder cash-in-hand. So are complaints about tax avoidance unthinking or, even worse, hypocritical?
There are two things to look at: the tax rules and people’s behaviour. In this blog post I will focus on the tax rules. In the next I will look at whether individuals can be criticized for avoiding tax.
Unfair tax rules
If we’ve all paid the builder cash-in-hand one thing is true, we all have similar opportunities to evade tax. But not everyone can avoid PAYE by setting themselves up as a company or convince HMRC that they are Luxembourgeios. Even worse, most people who can do this are at the top end of the wealth scale. Opportunities to avoid tax are not equally available to rich and poor.
Political philosopher John Rawls argued that economic inequalities are justified only if they benefit the least well-off (his so-called ‘difference principle’). For many this is too heady an egalitarian sauce. Why should the poorest have a veto on the acceptable level of other people’s income? But our tax rules seem to be based on an even more heady principle: opportunities for tax avoidance should favour big corporations (over small businesses) and high net worth individuals (over you or I). This hardly seems fair. Of course, tax rules are not purposely designed to be unfair but they do seem to have this effect; and this is a reason to object to them.
One general reply is that it makes no sense to focus on tax avoidance when tax evasion (such as cash-in-hand payments) costs far more. But objections to tax avoidance need not based on the amount of money involved. Moral outrage about tax avoidance (whether justified or not) is shared across the political spectrum – from little Englanders who have a soft spot for Nigel Farage to dyed-in-the-wool socialists who think that Marx has just not been right yet.
These people may not agree on anything else and some will think that the money lost is not the state’s to claim anyway. But what they can agree on is that whatever the rules are they should be fair.
In addition, the debate on tax avoidance becomes confused if we focus solely on the amount of money involved. It makes it sound as if the problem is that the system is inefficient. Money is falling through the cracks! This frames the problem in somewhat dry, technical terms that should be turned over to economists or perhaps bureaucrats to solve.
But moral sensibilities are seldom provoked by technical inefficiencies; and making the tax system more efficient would not address people’s sense of injustice.
Moreover, thinking of the problem in terms of fairness – and explicitly separating fairness from economic issues – helps us to pose important questions. What would a fair tax system look like? What would be the costs – either to individuals or in terms of reduced tax receipts? It has been said that Amazon’s business-model would not survive fair competition with high-street bookshops so one cost may be more expensive books. Are these costs worth it for fair rules?
John Rawls said that ‘laws and institutions no matter how efficient …must be reformed or abolished if they are unjust’. As unfairness is a form of injustice he was clear that a society with fair rules is more important than a society with a large tax take – even if that money is re-distributed to poorer citizens.
People disagree with Rawls but, I think, one thing is true: if a tax system and its tax rules are insensitive to fairness, it will not command the loyalty of citizens indefinitely.
So what should be done? Advice is not my purpose here but I think the tax avoidance debate would be more fruitful if it were re-framed in terms of fairness. This would require accepting the possibility that a fair tax system might have economic costs and arguing that those costs are worth it. This is not an easy task but it can be done.