Tax avoidance, the capitalist morality tale

In economics, and in particular the provision of public services, there is an on-going issue known as the “free-rider” problem. In its simplest terms, a free rider is defined as someone who benefits from a service but does not pay for it, resulting in that service’s under provision.

Although it has a strict economic definition, “free rider” is a useful moniker to sum up the root cause of a very real feeling of envy and anger many people have towards those who refuse to play by the rules. It is usually pointed towards a particular kind of person — the so called benefit “scrounger”.

It’s understandable, the cliché is of the overweight, binge drinking lout willfully enjoying life at the expense of hard working people. However, this is just a cliché. For every scrounger and benefit cheat there are countless deserving recipients of the safety net that sets our society apart.

There lurks a far greater sponge on society, a group who not only refuse to contribute to society to the level democratically mandated but have taken advantage of the very same public institutions and infrastructure to the point where they are able to dodge it’s upkeep.

These are the tax-avoiders.

Ignoring the elephant in the room

A point of definition here. I don’t mean those who evade tax through illegal means — these are criminals the same as bank robbers and indeed benefit fraudsters. They are more than free riders and deserve greater penalties — this is clear.

I wish to refer to those who use legitimate, legal methods to avoid paying the tax that provides the foundation, institutions and frameworks for their success. Tax avoiders, not evaders.

The scale of tax avoidance is truly enormous. Roughly £19bn is estimated lost through tax avoidance compared to £1.2bn for benefit fraud. This means that for every £1 an easy rider takes from the benefit pot, the likes of Gary Barlow, Jimmy Carr or the clients of HSBC’s Swiss subsidiary take £19.

It’s very hard to get accurate figures on the scale of government efforts to clamp down on tax avoidance, given it’s legal. However, if the effort spent on tax evasion — an actual crime let’s not forget — it’s woeful and completely out of step with the size of the problem.

Over three years, £17 million has been spent on tackling benefit fraud compared to £600,000 on tax evasion.

This doesn’t begin to describe the enormity of the issue. It excludes those multinational firms who sell in the UK, take advantage of our public infrastructure, healthy and well (publicly) educated workforce and pay next to no tax on those sales because they are based in Ireland, Switzerland or one of the myriad of havens around the world.

Yes Amazon, Starbucks, Facebook, I’m looking at you.

So when David Cameron says:

“It’s quite wrong that there are people in our society who will behave like this. But we will not shrug our shoulders and let them get away with it any longer”

The only shock is that he’s not talking about the tax-avoider but the scrounger. The reality is that despite tax avoidance being a greater drain on the public purse, you would think it has the benefit fraudster that is serious wound to the body politic.

The rebel on his high horse

So why is it that the “scrounger” is targeted over and above the “avoider”? The answer is simple and it poses a serious question for how we view our society and our responsibilities to it.

Essentially we live in a world governed by supply and demand. Advances in society are based on the personal drive to improve one’s circumstances and those of one’s family. Cheaper and better products, faster transport, better communications and just about everything else is driven by individual’s attempts to better their lives and the “natural economic selection” engendered by a free market.

In this world it is a simple, obvious, rational and — some might argue — desirable extension that people try to avoid tax. The urge to so this is the basis of our capitalist, free market society. Compare this to the situation of the benefit scrounger.

Here the system malfunctions and this error is the root of our anger. When it becomes economically rational to avoid work, avoid betterment and settle for a static low level existence, the drive that spurs our innovative economy stalls.

To many, this is a definition of “free riding”, to extract yourself from the capitalist rat race rather than the tax system. To avoid tax is simply to play the game and any anger should be felt towards the game, not the player.

Everywhere we’re in chains

In my view though, this is brutally and naively short-sighted. One cannot simply place oneself outside of the system of society democratically mandated. Not only is this unfair to those unable or unwilling to avoid tax but it’s actually self-defeating. We have all made a choice to create the society we have, we may disagree with it but you express that view at the ballot box, not by doing whatever it takes to avoid the system.

I’ve struggled to think of how to express this view but in the end it turns out someone already has. One of my favourite and most often miss-understood quotes is Jean-Jacques Rousseau’s famous opening to his book “On the Social Contract”

“Man is born free, and everywhere he is in chains. Those who think themselves the masters of others are indeed greater slaves than they”

On reading this, people believe it relates to the natural, free-born man being enslaved by their betters and being locked into subservience. It doesn’t.

It means that everyone in society may believe themselves to be free in their actions but in fact everything they do, everything they achieve is conditional on the support of others. When you go to the shops, you think you freely choose to buy chicken but actually to make this choice you need an army of farmers, logistics carriers, truckers, checkout staff and many others to make it possible.

The idea we are simply free radicals, bouncing around freely acting upon economic rationale is simply not accurate. Every rational decision is dependent on everyone else.

Those who have accumulated much may not think they are accountable to society, they may well have worked hard and sacrificed much but all of that is conditional on their being a stable society at all. It is conditional on everyone else.

Therefore, to avoid tax is morally reprehensible and an outrage on the scale of benefit fraud. Tax evasion is a crime, tax avoidance is a moral crime the root of which is in the naive free market doctrine of advancement by individual decision making.

Tax avoiders willfully ignore the society that enabled their success and tell us it’s legal, moral or rational. It may be legal, but it’s short sighted, naive, arrogant and wrong.

Originally published at on February 11, 2015.

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