by Chris Horner
Just about everybody knows what tax is for, and why they need to pay it. Most do so, with varying degrees of reluctance. A few do all they can to avoid paying it, using legal, and sometimes illegal methods. There is a sense that those who do dodge paying tax are doing something wrong, a sense that can be hard to articulate. I want to try to clarify and support people’s sense about tax avoidance as wrong. And I want to suggest why the issue of tax is importantly connected to our lives as social beings. Why it’s not just about the cash, in other words.
A lot of a people don’t like paying tax. But they obey the law, and in most cases see the link between the things the state provides and the tax they pay. But they wish they didn’t have to pay it. This is understandable, but misguided. It arises because of a misunderstanding about what tax is, and more than that, a failure to see what one’s place is in the social fabric: a sign that something has done wrong with the way we lead our collective lives. This failure creates an atmosphere in which tax avoidance comes to seem reasonable.
Tax avoidance should be viewed not only as wrong, but as a symptom of a social pathology. It concerns our nature as social creatures, and what it means to be free. Now, while there’s general agreement that there is a big difference between tax evasion (illegal: breaching the law to escape tax), and tax avoidance (legally minimising one’s tax liabilities), there is a lot of confusion about what one’s duties are here. Is it enough to not break the law? I say it isn’t. We should have the right attitude to tax, and failure to have that right attitude indicates something is amiss with the society we live in. I am not considering here the principled decision to withhold tax on ethical or political grounds. That is another matter and one with ramifications that I can’t get into now. I am just considering the general attitude to paying tax in the first place.
There are some things people say about tax that are plain wrong. The first is the idea that your income is simply yours before the taxman comes along and takes it. On this view, tax is a kind of necessary evil, an intrusion into one’s property. This isn’t true, and it isn’t so whether we are thinking of salaries, profits or bonuses. You do not own all your income before it’s taxed. Ownership itself has no meaning unless it can be enforced, and for that you need police, courts, lawyers, and all the other things the state provides. These all come at a cost, and that cost is paid by tax. Ownership is a legal right and laws imply government and thus taxation. Contracts, pay, property itself (not to mention roads, schools, police etc.) presuppose taxation. Ownership and tax are inseparable. This is still true for those libertarians who want a minimal state, paying only for the police and the basic functions of security. In any case, most of us want more than this: schools, libraries, pensions and so on, the fabric of a modern society. And this is before we get to thinking about tax as a form of wealth redistribution. Tax is part of property, not the antithesis of it. The exact level of the tax you pay is the one set by society; but the principle is clear: property and tax are inseparable. Will one and you will the other.
There is another fallacious argument in support of tax avoidance. We sometimes hear people arguing that it is hypocritical to complain about ‘off shore’ tax havens, or other legal dodges like redefining one’s employees as self employed (to avoid paying national insurance) since most people will do analogous things if they can. Isn’t investing in a government-backed tax free long term savings product (eg, in the UK, an Individual Savings Account or ‘ISA‘) the same thing? or buying something duty-free? Major tax evaders and avoiders make much of this, but this is disingenuous.. Tax avoidance is bending the rules in order to avoid tax parliament, congress whoever, intended you to pay. An ISA or the like, in contrast , has been set up with the express intention of encouraging people to save. You aren’t going against the spirit of the thing if you put your money there; you are if you invent a clever instrument for avoiding the tax you were expected you to pay.
Some large corporations will go to great lengths to avoid paying tax. The typical line of any CEO who finds him or herself having to answer questions about the various tax avoidance dodges a company has embarked on is to respond that yes, they’ve done all they can to limit tax liability and that no, they haven’t breached the tax laws of the country. We sometimes then get the semi rhetorical question: are you saying that legal tax avoidance is a moral issue? The assumption here is that it is just fine to avoid tax unless one has actually broken any laws, and that there is an unjustifiable moralism around the issue. The company seeks to maximise returns for the shareholder, and the state, if it doesn’t like it, must change the tax laws. If the law hasn’t been broken, what can one say?
One could say that it is immoral. But the problem with the ‘moral’ approach is that it is too easily countered by the accountant or CEO that law and morality are quite different things, and that the latter is subjective (your moral view isn’t his). That’s a facile argument, and it can be countered by making the point that morality isn’t subjective. One has moral duties which demand, that one should be consistent in applying the rules one lives by: lying can’t be OK for you and not for me; you should treat others in ways which reflect their rights and dignity and persons: ‘do unto others as you would have them do unto you’. Alternatively, one might go for a consequentialist approach: widespread tax avoidance is bad for society. The problem is that if the CEO can show he hasn’t got his fingers in the till, hasn’t actually lied and has kept strictly within the law, both arguments may fall flat.
The CEO may be the perfect example of the man or woman of integrity, a person whose word is their bond, who is loving to their children, donates to charity and so on. And he or she may be perfectly sincere in claiming not only that there is nothing wrong in avoiding tax, but that their legal, contractual and moral duty point to the rightness of doing everything possible to minimise the tax liability of the company and shareholders. Their conscience is clear and they can recommend to others that they do likewise. And they might dispute the argument that their tax avoidance schemes are bad for society: tax, they might argue, blunts the incentive to build a flourishing business which is just the thing society needs. So perhaps inequality and smaller state are outcomes we should aim at if the rewards incentivise individuals to enrich themselves. Such claims are open to debate and contradiction, but the point here is that ‘moral’ arguments alone are unlikely to be decisive, assuming the CEO is prepared to enter a moral debate at all. A likelier response would be the retort that you are just moralising. But this is business.
So let us return to the tax problem. What should we make of the outrage felt at the tax avoidance measures of corporations and rich individuals? If we view ourselves as members of an ethical community (the ethical substance of our lives that structures the ways in which we think and feel) we can see that there is justification in that outrage. The CEO who denies the moral claims on him or her is both right and disingenuous. For there is more than morality at stake here: there is the notion of social life itself. The anger that we feel is that of the person who senses that the ethical substance has been damaged or subverted. In isolated cases such subversions can be seen as breaches in the fabric of our common lives, which social pressure and legislation can fix. The problem we face, I suggest, is when the breaches are so numerous and repeated that the ethical substanceitself is degraded. This has been compounded of late by the ideology that claims that the state should do little or nothing in order to allow ‘the market’ to supply solutions to our social problems. The result is a state that has been eroded in its efficiency to the point where it can’t deal with a typhoon, let alone a virus, as we see to our cost now. And it is evident that much of the ‘low tax, small state’ propaganda has been pitched to benefit the 1%. The question of what one does in an unjust society, one that denies human freedom through the activities of a self-interested class and the workings of an economy based on exploitation, is a huge one. What does one do if civil society (the economy) alienates and immiserates? We can work for a large scale change, in the long run going beyond the logic of markets, ownership and tax, even the state as we have come to know it. But in the long run, as the saying goes, we are all dead. What should one do now?
In the short term we can point out that tax is part of the price for civilised life, and demand that the law reflect this. The key is to build on people’s justified sense of outrage at goings on at e.g. the banks, to push back against the Me First ideology that’s been dominant since the neoliberal surge in the 1980s. It’s a question of working for change in the ethical substance of our society by drawing on the the norms of justice and fairness that already exist there. This is desirable and practicable, and the basis for it already exists in the anger at the unfairness we see around us. What is seen as acceptable can change. Struggles against sexism, racism and abuse of all kinds have made progress, although that progress can never be taken for granted. Law, here, will not be enough unless the sense of what is intolerable is made manifest, if necessary by direct action. It doesn’t happen overnight. But think of the changes we’ve seen on Green issues, child abuse, racial and sexual discrimination, homophobia, and so on. The fact that large numbers of people feel a sense of outrage at food-banks in a rich country, huge bonuses paid to bankers, people being denied housing, zero contracts, corporate tax dodging and escalating inequality is a sign that the ethical sense can be a source of radical change – if we mobilise and fight for it. Ensuring that such change promotes freedom for the 99% is what progressive political and social action should be all about.
The fact that ethics doesn’t always motivate isn’t an argument against this shift, any more than the fact people steal is an argument for thieving. We need to have something deeper than law: a shared orientation towards the Common Good (ethics) and not merely either tax law or so called ‘private morality’. This concerns our ethical substance, shared ways of life and feeling. The idea that since the taxman is the enemy, one is justified in avoiding tax, via off shores, tricks in accounting etc., has to be fought. The motto of the rich is ‘only the little people pay tax’. It’s got to stop.