Friday, 13 February 2015
Morals, ethics and the matter of paying taxes
As is the case with much of our national political discourse, the recent tit-for-tat over taxation is more notable for its sound and fury than for due consideration of the principles and issues being discussed. However, at the heart of all this is a very confused debate about the morality, ethics and practicality of paying and collecting taxes. A confused debate because these three things - morals, ethics and practical administration - are all muddled up in people's minds.
Part of the muddle is deliberate. Some on the left want to make the paying (or not paying) of taxes into a moral issue - indeed something of a moral crusade. In Bradford, we recently joined lots of other local councils by signing up to something called "Towns Against Tax-dodging" - a futile piece of political posturing but one that warms the cockles of some Labour councillors' hearts. Collectively we were 'sticking it to the man', sternly disapproving of those nameless, faceless plutocrats running tax-dodging businesses and pointing out that if they all paid loads more tax then we'd have no austerity. Or something like that.
And these moral crusaders have a point. Not one I agree with but a point nonetheless - these righteous folk believe that taxation is a moral issue. Such people believe collecting taxes isn't simply a practical thing, the means by which government gets the cash to do the things government does. For the true progressive believer tax is the means by which the wrongs of inequality are righted and the sins of capitalism mitigated or removed.
So when these bushy-tailed campaigners come across people who take a different view of tax from them, seeing it as, at best, a necessary evil, their instinct is to point and shout about their moral position. How dare such people - especially the ones with plenty of money - how dare they try to avoid paying taxes. Do they not realise how immoral such acts are, how they deny governments the cash to right wrongs and mitigate the corrupt world of those rich folk.
The problem is that this debate about morality is contested. Some people - quite a lot of people in truth - take a different (and equally valid) moral stance in believing that high rates of taxation, whoever they are levied on, are essentially immoral and that governments have a moral duty to keep levels of tax to a minimum. I know that the true progressives don't get this - or recognise it as a legitimate moral stance - but it is central to why the framing of our debate about taxation is misleading and unhelpful.
The place for resolving this debate about the morality of taxation, the role of taxation in society and the need (or not) for redistribution is in parliaments. Our political process exists precisely to resolve such disputes. And, given the nature of the system, we can expect the emphasis in taxation to swing backwards and forwards between tax as a tool for social betterment and tax as primarily a means to secure government revenues. None of this is about the specific behaviour of individuals engaging with the tax system.
Such individual behaviour is a matter of ethics rather than morals. And ethics tells us that our responsibility is to comply with the rules - essentially the morals - of the system. We make a distinction between the matter of keeping what we pay in tax to a minimum (avoidance) and not paying taxes we should have paid (evasion). In simple terms it is perfectly ethical to do the former and unethical (not to mention illegal) to do the latter.
The problem comes in the fairly extensive grey area between avoidance and evasion - what some now refer to as 'aggressive avoidance'. It's one thing, we might say, to make appropriate arrangements so as not to pay tax we don't have to pay. In my self-employed days I fully expected that the money I paid my accountant to complete my tax return would be more than covered by the money he was able to save me on my tax bill. But somehow this isn't quite in the same box as joining some complicated scheme so as to reduce tax - knowing full well that the only purpose of the scheme is to reduce that tax.
Such practices might be frowned upon - those true progressives who feel paying taxes is a matter of morality will be most frowny here - but, in strict terms, they are not unethical. Yet we have leapt on those using such schemes as if they were great sinners rather than people who, for whatever reason (probably the fine one of self-interest) choose to take a different moral stance on paying taxes. Some may not like - may even feel cheated in some way - by the schemes but the problem is the framing of tax rules not the ethics of the person legally reducing his tax liability. So the criticism should rest with the government or governments responsible for the rules of the tax game not those who make creative use of flaws in those rules (and the more rules there are the more holes and the more flaws).
There are two ways to deal with this problem. The first is to reduce the level of taxation - not just because it is morally right to do this but for the practical reason that lower taxes will mean less incentive to avoid paying those taxes. The second is to make tax rules less complicated, to cut out the reliefs, differential rates and other well meant (but exploited) elements of the tax code - with a simple uncomplicated tax the opportunity for avoidance is reduced.
In the end we need to be rather more relaxed about the problem. Rather than point fingers at all the bad people who selfishly want to keep more of the money they're earned for their own uses, what we should be doing is trying to work out how to match those folks selfishness with our interests. That way everybody wins. For sure there's a moral debate about tax but, in truth, it's a pretty practical business that should be determined by the reality of Colbert's observation that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
Right now there's a lot of hissing which suggests we might have got the balance wrong.