Yes, tax avoidance can still be wrong even if it’s legal

This post was written by Owen on June 21, 2012
Posted Under: Economy

This is the view of blogger extraordinaire on all things law-related David Allen Green on the Jimmy Carr tax avoidance affair:

It’s hardly an uncommon view, and on the face of it a persuasive one: why would anyone choose to pay more tax than they were legally required to? What, when you get right down to it, is the difference between putting down your actual income on your tax return so HMRC charges you the right amount, and hiring an army of accountants and lawyers to funnel millions of pounds of your money through a holding in the Channel Islands so you only have to pay an effective tax rate of 1% on what you earn?

Putting the argument in these terms – I hope – makes it a bit clearer why this view is a lot less plausible than it initially seems. It essentially says that where tax is concerned, your civic duties begin and end with you strictly obeying the letter of the law. But we don’t think this about pretty much any other area of life. We don’t think that the blame for alcoholism and all its associated anti-social behaviours lies with MPs for failing to bring in a 21st century version of Prohibition, or that queue-jumping is the fault of legislators for not making those who don’t observe proper line etiquette subject to legal sanction. It’s neither desirable nor possible to ban all forms of selfish, anti-social behaviour. And that, at root, is what tax avoidance is. If you accept that tax is necessary for society to function, and that it even allows for the existence of one or two things which Jimmy Carr probably finds quite useful, like public roads and hospitals (he might have private insurance, but even millionaires will probably use NHS A&E departments), then it follows that using legal loopholes to get out of paying your fair share of tax (where the amount you’d be paying if all your earnings were declared as personal income can be taken to be a – very – rough proxy for your “fair share”) is free-riding on the money paid by others, and about as good an example of anti-social behaviour as any other you can name.

Of course the rules on tax avoidance should be tightened up as far as possible, but, as Chris Dillow has pointed out, tax morale –one’s willingness to pay, rather than attempt to avoid tax – matters too. Chris has also said he’s sceptical about the possibility of altering tax morale, but on this I’m inclined to be rather more optimistic, for reasons that the Jimmy Carr affair highlight rather well. Tax avoidance has attracted great public attention recently, thanks in no small part to the actions of UKUncut. The Jimmy Carr story was originally broken by the Times, and was then picked up by the Telegraph. In both cases the coverage was unambiguously negative, while David Cameron’s criticism of Carr seemed to meet with the tacit approval of the Sun. If we’re at the point where a Conservative Prime Minister and three overtly rightwing national papers are taking stands against tax avoidance – whether it’s because they’re cynically playing to the public mood or not – then I think it’s safe to say things are shifting in the right direction.

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Reader Comments

Sandman

This idea that millionaires hire “armies” of lawyers and accountants…
Taking your income offshore would involve one accountant, one onshore lawyer and one offshore lawyer. This is one lawyer more than the typical high earner would be engaging in any event to deal with their business affairs.
I’ve worked on complex offshore transactions which have the effect of avoiding tax. It’s unusual that more than a couple of lawyers are required.
Assuming that an offshore scheme is lawful then why should somebody pay more tax than they are required to?
Everybody who goes to France stocks up on wine. The wines are the same quality as the ones available in England but are cheaper partly because of lower duty. English wine purchasers are choosing to make their wine purchase transactions in a jurisdiction with more favourable tax rates (and maybe fill up the fuel tank too). It’s the exact same principle as other offshore schemes.

#1 
Written By Sandman on June 21st, 2012 @ 9:37 am
Ab

I actually agree with the sentiment, whilst we focus our anger on individuals exploiting the system we miss the obvious point that whilst there are loopholes somebody will exploit them.

Dont hate the player hate the game! Then change the rules.

#2 
Written By Ab on June 21st, 2012 @ 7:12 pm
julia

Both of these comments miss the whole point of Owen’s argument, which is not about whether people will ‘exploit loopholes’ but is people understanding and supporting the need for and purpose of taxation — though, as Sandman and AB illustrate, we wouldn’t necessarily expect exploiters, profiteers and privatisers of public services to be among them.
I think Owen is right to think that people want to protect the funding of public services (and, in the process, the redistribution of wealth) through taxation, but I can’t imagine that this is the real agenda of Telegraph, the Sun and David Cameron.

#3 
Written By julia on June 23rd, 2012 @ 9:00 am
Jules

Well, I’m a taxpayer, and I don’t employ “armies of accountants”, but I truly, do not understand the need for or the purpose of most of the taxation that I’m subject to. As far as I can tell, a small proportion of it is poor value for money, and the vast majority is utterly wasted on nothing but bureaucratic machinery.

I do believe that there is such a thing as national infrastructure and support, and I do believe that taxation is a fair way to pay for it. (I actually believe that much of what I’d consider essential public services are actually woefully under-supplied, but that’s just me, I guess.) I have a real problem understanding the notion that the rich should pay a higher proportion of their income to fund those services than everyone else (I rather suspect that everyone should pay exactly the same tax, whatever their income, but I get that hardly anyone else would agree with me).

But what Owen, and governments need to understand is that, in today’s modern, interconnected world, consumers of public services (both individuals and businesses) are able and prepared to arrange their affairs such that they get the best and most relevant services for the lowest cost. To a very real extent, governments are now in competition with each other as much as supermarkets are, and the feudal idea of servitude – of duty to a lord and master however unreasonable his demands – is thankfully long gone.

Perhaps I’m being naive, but I truly believe that nobody, not even the super-rich (whatever that means) would begrudge paying a fair level of tax for a fair provision of service.

#4 
Written By Jules on October 26th, 2012 @ 1:58 pm

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