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.