The morality of tax avoidance

Emile Yusupoff has written on the above topic at the Adam Smith Institute blog. Thinking about such things is of course due to the debates around the Panama Papers leak and whether taking advantage of legal tax avoidance schemes is moral. The claim of many of those upset by the Panama Papers seems to be that it is not. Although it is not clear why. Should we just happily give up whatever amount of our income the government demands and to not do so is a form of theft.

Yusupoff writes,

The view that all taxation is theft may not have much currency outside of hardcore libertarian circles. The opposite view, that there’s no such thing as ‘your money’ and you have an absolute obligation to give up whatever the government thinks is fit, sadly seems to be gaining currency.

The perspective that avoiding tax is inherently theft rests on some very peculiar assumptions. It needs to be accepted that current tax rates are either just, or not high enough, that the right things are being taxed in the right way, and that taking advantage of any loopholes is wrong.

For instance, in order to think that setting up a company to avoid income tax is immoral, you need to assume that: (i) income should be taxed at a higher rate than corporate profits; (ii) there is an obvious and absolute moral distinction between income and profit; and (iii) there are objective grounds to determine when it is legitimate to register a company.

And what about government encouraged avoidance schemes, such as ISAs and tax relief for risky investments? Is it wrong to take advantage of these?

It also needs to be assumed that providing the government with all the funds it demands is moral. It’s easy to talk about hospitals, schools, the roads, defence, and welfare. But that skirts over the real question of whether government should be funding these things at all and, if so, whether they should cost what they do.

It also ignores less palatable areas of expense, such as spending on foreign wars, nuclear weapons, a quixotic and destructive drug war, nonsensical vanity projects, bloated and pointless government departments, and corporate welfare. The same people who attack tax avoidance also (I think correctly) decry much of this, yet remain absolutely committed to the ‘obligation’ to fund the state’s largesse above and beyond what the law requires.

These issues may not have an obvious answer. But that’s exactly why tax dodging cannot just be lazily and self-righteously vilified as ‘disgusting’ by definition.