It used to be that tax evasion (not paying taxes one was legally required to pay), which was illegal, was considered wrong, but tax avoidance (not doing things that incur tax) was considered benign. But no longer. During the Blair era it became routine for ministers to condemn the alleged immorality of those engaged in tax avoidance (one reason it was particularly damaging, during the MP expenses scandal, that senior ministers were found to have been – perfectly legally, and in much the same way as everyone else was entitled to, designating properties sold as primary residences for capital gains tax purposes and thereby avoiding CGT). Tax law has now evolved to the point where it is virtually illegal, in many areas, to offer explicit advice to businesses on how to avoid paying tax. Last year saw television documentaries condemning the rich (including government ministers) for avoiding taxes, and we finished the year with a series of tax avoidance protests.
I want to disagree with all this. It is perfectly proper to avoid paying tax. In fact, more than that, taxes are very often imposed precisely so that people will attempt to avoid paying them.
Let’s take a neutral case first. If you buy freshly squeezed orange juice, the price includes VAT. If you buy standard concentrated orange juice, there is no VAT. So if a key reason you buy concentrated orange juice is that it is cheaper, you are avoiding paying VAT. Is that wrong? Spirits incur higher alcohol excise duty than beer. So if you would fancy a whiskey but consider the price a bit steep and so buy beer, you are avoiding paying tax. Is that wrong?
How much it costs us to do things – including the cost of taxes that we pay – is a perfectly legitimate motivation. Indeed, in many cases taxes are imposed specifically to try to encourage us to avoid paying them, to change our behaviour. Unleaded fuel used to carry less petrol duty than leaded. Cigarettes carry special taxes to try to encourage people to give up. Do those that object to tax avoidance think people should not have switched to unleaded fuel to avoid paying the higher fuel duties on leaded, or should not stop smoking because they find it expensive?
Governments also operate in the other direction, creating tax breaks for behaviour they wish to encourage, for example by introducing special temporary accelerated capital allowances to try to encourage businesses to invest early (say, in a year of recession). Are businesses that avoid paying taxes by so investing, rather than waiting until later, engaged in immoral and improper acts?
Sometimes it is suggested that it is the deliberate attempt to avoid paying the tax that is the problem, that if you are motivated by the desire not to pay the tax then it is wrong. So, for example, it would be fine to buy concentrated orange juice if you preferred it to freshly squeezed, but not merely because the freshly squeezed is one fifth more expensive than it would have been without VAT? Or it would be fine to drink more beer and less spirits because you prefer the taste of beer, but not because of the higher price of spirits because of the additional duty charged?
Is the idea that income taxes are different in some way? Why? If you earn £100 and I tax £20 of your earnings, what is supposed to be the fundamental difference between whether I take that £20 by imposing a 20% income tax or a 25% VAT rate (25/125 = 20%)?
I suspect that the reason people think taxes on income are different is because they have a collectivist notion of property, but an individual conception of consumption: they think income is “ours” but consumption is “mine”. So they think that the state imposing a tax on your income is deciding how much of our income to let you keep. If the income tax 50%, the idea is that you are supposed to get 50%. If you avoid paying that tax, you are getting more of “our” income than “we” intended, so there is a kind of swindle involved – your share of society’s cake ends up being greater than you were supposed to get.
But that’s just wrong. In Britain people have private property, and private income. Income isn’t the state’s, for it to decide how much you get to keep. It isn’t “ours”; it’s “yours” and “mine”. Instead, the state imposes taxes, normally on specific activities but also on specific assets. If you don’t engage in those activities or possess those assets, you should not be liable to pay tax.
So if rich people organise their affairs in such a way that they are not liable for tax, that isn’t wrong. Indeed, even thinking of them doing something to avoid paying taxes isn’t really the right way of thinking about it; rather, it’s that they are not doing the things that incur taxes.
Finally, what about the argument that the rich have some duty to help out the rest of society, and in a time of austerity in particular is it not right that they play their part? Of course it is! But why do you assume that that taking part must take the form of paying more tax than they are liable for? Why isn’t it by investing in new businesses, or by giving to charity? Even if it is something to do with helping the state, why don’t they buy government bonds and then forgive them (a common practice of the rich in the late 1910s and early 1920s, when it was considered a public duty to help pay the costs of the Great War (Stanley Baldwin was a famous proponent))? Or if they really ought to pay additional tax, why don’t they make an ex gratia payment to the Treasury?
The reality is that we all avoid tax (and do so quite properly) and that there is no moral difference in this area between the consumption taxes we all avoid and the income and business tax avoidance that is widely criticised, unless one takes the profoundly un-Conservative view that all property is collective but consumption is private.