Friday, June 22, 2012
Tax avoidance is not just legal, but moral
The feeding frenzy is out. In the UK if you legally arrange your personal affairs to minimise your tax liability then the Prime Minister thinks it is immoral.
It all came out when a newspaper reported that comedian Jimmy Carr is apparently using a legal tax-avoidance scheme through Jersey. Carr's humour is ascerbic and rarely has anything political to say, although it was notable he poked fun at banks and tax avoidance not long ago.
However, David Cameron's jumping on the bandwagon of condemning tax avoidance as immoral is about participating in a radical left-wing campaign that essentially supports more tax. A campaign pushed by the economic-illiterates at UK Uncut. That group supports increases in the size of the state, opposes spending cuts and wants more money collected in taxes from businesses and those on relatively high incomes. Its demand to further infringe on the property rights of businesses and individuals is matched by its supporters invading and occupying private property to "make their point". However, give them credit for being consistent - these people don't believe in property rights (until you take anything they claim).
As I'm a libertarian, I believe taxation is legalised theft. It is money taken by force because people engage in behaviour the state has deemed it wants to charge for, such as employment, making a profit, buying certain goods and services and the like. It isn't a charge for a service provided. There is no consent involved, there is no relationship whatsoever between taxes paid and services received.
So from my point of view, whatever steps anyone takes to not pay tax are moral, because it is an act of self-defence against the use of force against property. Plenty of Greek citizens do this presumably because they can and because they don't believe the state spends their money wisely, and they'd be right.
Legally, there is a difference between tax evasion and tax avoidance. Tax evasion is to take steps to conceal undertaking activities for which tax is due. Tax avoidance is to structure your affairs to minimise your legal liability for tax, not through concealment or falsifying tax returns, but by any legal steps.
Buying duty free alcohol at the airport is tax avoidance.
Choosing investments that have low or zero tax liability over others, is tax avoidance.
Some instruments for tax avoidance are complex and require professional assistance, which effectively means only people with relatively high tax liabilities can see net savings from paying someone to help them minimise their tax bill.
That's what Jimmy Carr did.
In fact, if he was illegally evading tax I'd also argue that it is not immoral either.
It is not moral to surrender to the state more money than you have to. The state, particularly when the bulk of what it spends the money on is to give preferences, privileges and unearned money to other people, is not a supreme moral actor.
Jamie Whyte in the Wall Street Journal explains why Carr acted morally (notwithstanding the mild hypocrisy over his past jokes about tax avoidance). I'll paraphrase his article below.
The usual vague comment trotted out by statists (those who believe that more state spending is generally a good thing) is that it isn't "fair" and that people must pay a "fair share".
Whyte makes the split between private and public goods.
Private goods are those which are consumed personally, such as healthcare, education, pensions, subsidies and the like. To equate taxes for those on any ground of "fairness" is open to serious criticism. Does Carr consume disproportionately more of these than others? If not, why should he pay more? Given his income appear to be many orders above that of the national average, it is fairly certain that he would pay much more than he is ever likely to consume. The people paying little or no tax, who do consume private goods are the ones where there isn't much "fairness", but the left take it for granted that it's fair for such people to have access to goods and services that they can't afford. However, that doesn't mean it is fair for Carr to be forced to pay for them. Why is his existence and success an obligation to pay for others? The only "fairness" argument is to pay for what you use.
For public goods, such as law and order and defence, the only "fair" approach is for everyone to pay the same. An argument can be made that the wealthier you are, the more property you have so it is fair to bear a higher burden for the costs of the state to be available to protect it. In which case, a low flat tax to cover such "public goods" would be "fair". Income tax of 10% would carry little incentive to engage in tax avoidance or evasion.
Beyond that, Whyte makes the compelling argument that given Carr generates income from people paying for his performance, he must generate a "consumer surplus" (nobody pays to go to his shows to get less than the value of the ticket, but more). So in fact he is already contributing as a producer. The snobbish sneers from conservative right and socialist left that he is a mere comedian (the conservatives considering it to not be a proper job in a suit, the socialists thinking it isn't as important as a bureaucrat or a miner) can ignore that, despite his comedy not having universal appeal, he makes people laugh and their lives a little bit better. They pay for it, so he "produces" (the alternative view is to embrace the wondrous delights of authoritarian regimes where comedy is suppressed).
Even adopting the Marxist view that we all have an obligation to those less fortunate which needs to be enforced by force (which I do not share), making Carr pay more in tax isn't really going to deliver that fairly at all.
The British Government does not redistribute wealth in a way that could be defended robustly as favouring the least advantaged, in actual fact it engages in masses of transfers to people on middle incomes and to people who, by global standards, are relatively well off. Some of the transfers are:
- Winter fuel allowance for everyone over 60 regardless of income (a subsidy for energy bills for the elderly. The Queen would get it if she applied).
- Child benefit, for every child in a household as long as no one in the household is on the second highest income tax rate (which hits at around £35,000 a year - hardly rich).
- Housing benefit, which can pay rents for a person or family up to £400 a week (a cap introduced since it was found that one family was getting over £160,000 a year for one property).
Beyond that, if it really was about those most disadvantaged, it would not be most people in Britain. It would be children in Niger or Haiti or elsewhere. It would be those without schools, without nutrition, without homes. However, it isn't. The claim that it is morally justified by helping the most needy is fatuous because it blatantly isn't true (nor could it be, as neither voters nor politicians would stomach it).
Winding back from all that, taxation exists because people vote for governments who impose them. Indeed the majority are docile about forcing the minority to pay for what governments bribe them with. Beyond the core functions of the state, little else that it does contributes to wealth creation, the services it does provide are unlikely to be of a standard or nature that people would choose themselves, and it engages in vast numbers of transfers that are little more than bribes to rent seekers who lobby politicians to get them to loot on their behalf.
Jimmy Carr is both legally and ethically correct to arrange his financial affairs to minimise his liability to this monstrosity. The budget deficit and public debt are not his fault, it is the fault of politicians and their second-handers who have demanded more and more be spent on them and their pet projects and activities, without being willing to force the public to pay for them (let alone ask).
Tax avoidance is legal, it is moral, and indeed I believe people have a moral duty to themselves and their loved ones to maximise the ways they can avoid tax - for tax takes from YOUR wealth so someone else can spend it, as they see fit. Why would anyone voluntarily, and legally, prefer politicians spending his own money to himself spending it, unless he himself was engulfed in self-hate or believed in his own ineptitude relative to politicians and bureaucrats?