Is tax avoidance immoral?
With all the recent talk in the media of Jimmy Carr’s tax avoidance shenanigans, I thought I’d ask this question if for no other reason than to bait all the hippies out there. I’m looking at you, Jenny.
Firstly, it’s important to understand the difference between tax evasion and tax avoidance. Evasion is the avoidance of paying tax by stepping outside of the law, such as failing to declare all taxable income or expensing items that you really shouldn’t be expensing. Tax avoidance, on the other hand, seeks to reduce your tax liability by making efficient use of existing laws, schemes and loopholes.
It’s important to understand that tax avoidance is totally legal. Is it moral, though? Hmm, I don’t even think I care. Why not? Well, for a start, morality is a subjective term so let’s not throw it around like it has some rigid meaning. For example, the hippie inside all of us would love to state that “killing is wrong” but is it wrong if the assassination of an evil dictator topples an oppressive regime? Is it wrong to give serial killers the death penalty? Is euthanasia wrong? Again, your answer to that is interesting to me but it certainly won’t change the way I see the world. The best we can do with such issues is to see how they fit with our own values. So, back to the issue of tax avoidance. Asking the blanket question “is it immoral” makes no sense so I won’t do that. Instead, I’ll explain how tax avoidance fits into my own set of beliefs.
If an act is legal, like any good psychopath, I can probably find a way to justify it to myself in moral terms should I want to do so. Tax avoidance = mo’ money, honey. So this shouldn’t be too hard.
Like you, unless you’ve ever appeared as a guest on the Jeremy Kyle Show, I work hard for my money. I’m proud of the fact that I’ve put in the required effort to improve my financial prospects, often to the detriment of my health and social relationships. However, for my efforts I’m met by the government taking 40p from every £1 I earn. This act impedes my motivation. It tells me that it’s my responsibility to work harder to take care of people who just don’t give a shit. I wasn’t gifted the opportunity of moving into the higher tax bracket. That’s something I did for myself. To me, this level of taxation feels a lot like HMRC are throwing knives at my face. If someone actually was throwing knives at me and I jumped out of the way, would you deplore my act of ‘knife avoidance’? My ultimate goal in life is to do things for me, for the needy and for the world. I want to get my PhD, just because. I want to set up a company developing technology. I want to donate large amounts of cash to charities that can put it to good use. I’m sure as hell not going to achieve those things by unnecessarily giving away all my investment capital.
Now, I’m not denying the existence of shady schemes. Tax avoidance is a spectrum of morality ranging from issues such as using ISAs to protect your savings and investments to claiming non-domicile status. Yes, both James Caan and I avoid tax but I would argue that I do it in a very moral way, whereas he’s a giant douchebag. And Jimmy Carr? Well, at this point in his life, I don’t think he needs to concern himself with limiting his tax liability, certainly not using aggressive and questionable schemes anyway.
The reality is this. The loopholes and schemes exist. If the government does’t want people to use them, it should close them. I’m not saying that all morality should be enforced by the law. I don’t want to live in a world that works that way. Yes, it’s 2012. People are still killing each other and you’re never more than 3 clicks away from seeing some starry eyed teenager getting made airtight by 3 ripped guys with ridiculous facial hair. But that doesn’t mean we don’t have time to still carry ourselves with a little class and dignity. We can still be ladies and gentleman and we don’t have to defenestrate our morals for the sake of making money. It is up to us to weigh up the moral arguments in a given situation and in the case of finance, it is up to us to decide to only partake in moral tax avoidance. Because, yes, I believe that half of all tax avoidance is perfectly acceptable on moral grounds. In fact, I think you should be doing it too.
Making efficient use of tax allowances is a painfully dull subject, but not as painfully dull as being poor. If you’re making a decent amount of money through various endeavours, the government have a lot of creative ways to take your cash and they offer a lot of creative ways to let you keep it. Moral tax avoidance is the use of the schemes and laws created and endorsed by the government for both economic and societal benefit. Tax evasion, on the hand, is a different story. The real question exists within the morally ambiguous area between tax evasion and government-endorsed tax avoidance. I believe the blame lies with the government. They should fix these holes. However, in the meantime maybe people like Jimmy Carr and James Caan should think more about the universal rule, don’t be a dick.
Tagged avoidance, bracket, capital, evasion, HMRC, james caan, jimmy carr, legal, moral, psychopath, tax, tax avoidance
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rplan_nickJune 25, 2012 at 10:38 am
Had you seen Lord Clyde’s quote on taxation (from http://en.wikipedia.org/wiki/James_Avon_Clyde,_Lord_Clyde, via @iancowie from the Telegraph):
“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”
Argues both for tax avoidance via legal means, and for the government closing loopholes it thinks shouldn’t exist. That would make Jimmy Carr right to have used whatever means at his disposal to avoid tax legally. But I agree with your point that we are all responsible for the morality of our own actions, whether or not within the confines of the law (well, at least that’s what I think you are saying
and what he did clearly wasn’t moral.
AshJune 25, 2012 at 11:47 pmAuthor
I think that’s the only argument that makes any real sense, Nick. Thanks for providing that quote. Of course, being a lord, he puts it much more eloquently that I did!
JenJune 25, 2012 at 10:19 pm
Interesting and topical post
I saw my name in the same sentance as hippy baiting and for half a moment thought you were gonna go totally pro-loophole just to wind me up :p Luckily I know you better than that so I gave you the benefit of the doubt before ranting and basically, I agree with your entire post!
I have an ISA, I’m a tax-avoiderer and I’m pleased that I live in a county with such generous, legal ways to minimise tax so that I only pay what I actually owe (does anyone ever want to do differently?). It’s really just a silly semantics thing but I think of doing this as tax-optimisation rather than tax-avoidance. I don’t want to avoid tax, I just want to pay the right and fair amount.
What Jimmy Carr has done is be a massive twat and yes it’s legal but it’s dubious as hell – he’s sullied the good name of tax-avoidance! He doesn’t *need* the extra money he’s gained by avoiding tax (I would also argue that you can’t *earn* that much money anyway but this is not the time to get into redistribution of wealth arguements!).
Just because something is legal doesn’t make it OK (see also: lying, adultary, fake tan).
That said, as much as Jimmy Carr and the thousands of others involvd in such schemes have been collectively knobbish, I think their wrongdoing is somewhat eclipsed by the greedy/cowardly/idiotic folk responsible for allowing such schemes to exist. SORT IT OUT! It’s all very well jabbering on about the UK having one of the highest tax rate in the world but that’s not much good if you can be here and not stick to it!
I didn’t really like the comparison that was made to benefit cheats, what they do is certainly very wrong but numerically speaking it would take a whole lot of benefit cheats to make up for one Jimmy Carr’s worth of avoided tax!
xxxJENxxx
AshJune 25, 2012 at 11:16 pmAuthor
Beautifully put! Important point there about semantics; tax optimisation really is a better term for it. I think the official term ‘tax avoidance’ is very misleading as it sounds sinister. There are a bunch of perfectly legal/moral things you can do to avoid tax. It’s just that the guy/girl on the street doesn’t know half of them, and so anyone ‘avoiding tax’ just sounds like a criminal.
JayJune 27, 2012 at 12:30 pm
I think this ‘ignorance’ for lack of a better word is a real shame and can be seen in many walks of life. For instance knowing your rights within the law can sometimes prove useful should you be confronted unfairly or unjustly by an officer of the law. In terms of tax breaks/avoidance/loopholes, as long as they are legal I see no reason legally or morally why you shouldn’t use them to the full extent available to you. Not doing this just proves our ignorance on what we can and cannot do within the law. (I of course include myself in this group as I am sure there are legal ‘loopholes’ regarding tax which I am unaware of.
DaveJune 27, 2012 at 2:54 am
There is legal tax avoidance and illegal tax avoidance. It’s illegal to not file and not pay taxes. In the tax code you will find that the government only wants the tax that you legally have to pay. If there is some legal means to reduce your taxes and you take advantage of every means to do it, then you are legally avoiding taxes.
We all agree that avoiding taxes you owe or you are filing a false tax return then you are doing an illegal thing. If you go up to the line but don’t cross it then you are legal. Simple.
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