It is perfectly proper to argue that some things that are legal are immoral – e.g. sloth, adultery, envy, greed. But sometimes, there is no wedge between the law and morality; that is to say, some behaviours are morally required precisely and only because they are legally required (e.g. driving on the right). What about tax avoidance? Is it one of those things that might be legal but is immoral? Or is it one of those things where there is no wedge?
Is my property fundamentally mine, to use as I see fit? Or is it fundamentally ours, with my getting to use whatever portion of it we decide? This is a deep question of political philosophy. Those that are fundamentally collectivist will, once all the caveats, prevarications and qualifications are stripped away, believe that if property exists at all, it is ours. If that is your view, then you will believe that when a tax is set, it contains some intention regarding what portion of our property you get to use. It might be, for example, that income tax is set with the intention that you get to use 60% of the income your work generates and the state gets to use 40%. If that is so, then if you arrange your affairs such that you only end up paying 20% tax instead of 40%, you have defied this intention of the allocation of property use. You are using more of our property than we meant to allow you.
If we are fundamentally collectivist about property in this way, we might say that avoiding tax is "immoral", in much the same way as if you stole some of our property, or borrowed something without asking. If, on the other hand, we believe that property is fundamentally private, we will want to deny this. And if we believe that property is private, it will be important that we deny that avoiding tax is immoral – for otherwise we shall be denying that property is truly private.
For many people, when they object to "tax avoidance", they will indeed implicitly be objecting to the avoiding of tax precisely as set out above. They might, for example, say that some forms of tax avoidance (e.g. ISAs) are morally fine because Parliament (i.e. "we") intend folk to avoid those forms of tax, whilst other forms, even if legal, are immoral. They may not mean to be thereby rejecting the very notion of private property, but that is exactly what they are doing. However, matters become confused, because in fact when many other people object to "tax avoidance" they aren't really objecting to the avoiding of tax at all. What they will be objecting to is one or both of two things:
- Paying "too low" a rate of tax, either absolutely too low or too low relative to others.
- Lying and defrauding, in an attempt to avoid tax.
Let's take the first of these. What I have in mind in the "absolutely too low" case is that there may seem to be something wrong about very rich folk paying little or no tax at all. For example, is it okay if people on millions of pounds of income per year pay only 1% tax? It might be that such a low rate of tax implied, in an absolute sense, too little participation in society. There are hungry people to feed, cold people to clothe, ill people to treat, old people to care for. Is it really okay if some very rich people devote only tiny portions of their income to such matters?
Perhaps there is something true underneath this, but it seems to me to be clumsily expressed if put as an obligation not to avoid tax. What about if a rich person paid 1% income tax but spent 70% of her income on charitable works for the poor? (And that is by no means inconceivable – there have been wealthy philanthopists that spent most of their money on charitable works. Indeed, even today a number of those most frequently criticised for avoiding UK tax have been very significant philanthopists.) Such a person is not failing to participate in society; she merely prefers to do it her way.
Even if there were an obligation to pay some absolute percentage in tax, it does not follow that it is wrong to avoid tax. For example, why couldn't someone be moral that engaged in tax avoidance schemes that reduced her legal income tax obligation to 10% but then paid 20% extra tax as a voluntary donation to the Treasury or spent 20% of her income on government bonds that she then forgave. In the early 20th century there was a significant movement amongst the British wealthy to voluntarily purchase and forgive UK government debt, to help out with paying War Debt. Why would it be wrong to avoid legal tax obligation, provided that the absolute amount paid met the required percentage threshold?
The point being made here is that it not the same claim to say that it is immoral to avoid tax as to say that some absolute percentage of tax ought to be paid. It could be, for example, that a rich person might not be legally obliged to pay the morally required percentage of tax even without engaging in any tax avoidance at all. If those that object to tax avoidance believe there is a moral obligation to pay some absolute percentage of tax, they should tell us what that percentage is and why, and argue their case directly rather than under the misleading (and private property-destroying) veil of "the immorality of tax avoidance".
Others may think the point is not that there is some absolute obligation, but that it is relative to the rest of society. So if everyone else were only paying 15% tax, perhaps a very rich person might have a moral obligation to pay only 20%, but if everyone else is legally obliged to pay 30% the very rich person ought to be paying at least 40%.
There are many reasons this is unconvincing. But let us focus upon one in the space we have. Suppose that the tax system includes a tax break for certain business activities and a subsidy for certain other activities. Is it more immoral to take advantage of the tax break that reduces one's tax paid to below the morally required threshold, or more immoral to take advantage of a subsidy that might be worth exactly the same amount of money? As far as I can see, using the subsidy ought to be more morally doubtful, because my property is mine so when I pay less tax I am keeping more of my property, whilst when I use a subsidy I am using some of someone else's property.
Let's move on to the second of our conflating moral issues: lying and fraud. In truth, I think the problem with many tax avoidance schemes is that they involve pretending things that just aren't true. They involve pretending that one is receiving a capital gain when it's actually income, or a loan when it's actually a salary, or money being paid into a "charity" that is nothing of the kind. That is to say, the problem with these schemes isn't that they avoid tax, but that they involve lying and (in the moral, if not legal, sense) fraud (damaging pretence). That's the proper reason for disliking schemes such as K2 or the treatment of carried interest – it's not the avoiding of tax, per se, but the lying and pretending.
And, finally, another thing one might think morally doubtful is to make oneself look clever by mocking tax avoidance schemes when avoiding taxes oneself. But again, in that case it's not the tax avoidance that's the problem; it's the hypocrisy.