On taxes, morals and practicality

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Once again tax has become a matter of moral debate. Rather than asking the sensible and practical questions – “how do we raise the amount of money we need to deliver those ‘vital’ public services?” or “what is so ‘vital’ about this or the other bit of public spending?” – we are debating whether it is or isn’t morally repugnant for a person to use the rules to minimise the amount of tax they pay.

And the target for all this is “the rich”, a group of ill-defined, nameless, faceless individuals onto whom we must heap opprobrium if they have the audacity to move their money around so as to pay a little less tax. Every now and then one self-righteous newspaper hack or other latches onto a particular person or a specific company and calls down the anger of the gods upon them – how dare they not hand over nearly all their income and most of their wealth to the government, how dare they!

And so the game goes – today The Guardian latches onto a dead man so as to have a pop at that dead man’s son. Nobody is suggesting that the son has done anything wrong but the sins of the dead man – reducing his tax bill by moving his money around – must mean that the son is a sinner too! And, sadly, the response of many is not to castigate the values that led to such an attack on a dead man but to accuse the paper (and others) of hypocrisy since they too indulge in such international money management for the purposes of tax minimisation.

This way madness lies! We do not have taxes as some form of punishment for those who have the gall to be very rich. Nor do we have taxes so as create some form of “morally beautiful” status of equality. We have taxes to pay for government. That’s it. No other reason is remotely defensible. And the job of the government is to raise those taxes efficiently.

Nowhere in this is there any matter of morals. Merely a set of practical issues: what is the best rate of income tax; what should the balance be between direct and indirect taxes; should reliefs be offered for desired actions such as philanthropy, business investment or saving for retirement?

However, those who cheer at the attack on a dead man choose to make this a debate about morals. So let's respond.

I do not believe that we have any more moral duty in paying taxes than to comply with the rules set down by the government. And if that means that a very rich man can avoid paying tax at the same rate as a much poorer man, the fault lies with those who set the rules not with the man avoiding paying the tax.

Instead we should ask why it is that very rich men – and others who are far from very rich – put such effort into avoiding taxes? Could it be, perhaps, that these men feel that rates of taxation are too high? Perhaps – and it’s hard to take issue with this sentiment – the very rich man believes that it is wrong for the government to seize more than half what he earns? Maybe, the very rich man believes it to be morally wrong for government to take such a large proportion of someone’s income?

We have got ourselves into such a state – with politicians forced into publishing tax returns and hints that ministers will be expected to do the same. I cannot but think that the idea of a very rich man giving public service – as rich men have been wont to do throughout history – is likely to become just that, history. Why should that man bother when his reward will be sneering attacks on him for the apparent sin of being rich? Instead, the man heads to his private island or grand house, shuts the gates and perches on his pile – having first ensured that only the smallest possible part of it goes to the government in taxes.

And the fault for this separation from public service will not be the rich man’s. The fault lies first with government for demanding too much of that man’s income and secondly with the frothing mob led by hypocritical journalists who castigate him and his sort – even beyond the grave – merely for having money.

Attacking the rich may make some of us feel a little better, perhaps more able to tolerate less pleasant personal circumstances. But it does not help the government in that task of raising taxes efficiently and it is not the championing of some moral righteousness. Taxation must be a matter of practicalities not moralities. If we get to the stage of shouting about morals then the only conclusion is that our tax system is not fit for its purpose of raising the money the government needs for its business.

And so it is. Taxes are too high on the rich and too high on the poor. In the former case we can see they are too high because of the lengths that rich men go so as to avoid those high rates. And in the latter case because we have to tax the poor because the rich aren’t there to be taxed.

I don’t know the right answer – the system that would work – but I do know that the current debate misses the point entirely. Taxation must be a practical matter if it is to work. Moralising about it just makes things worse.

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