Evasion involves illegally not paying tax that is due. This includes not declaring £10 received for babysitting and multi-million pound schemes by professional criminals. Evasion is wrong and it is also wrong to aid and abet somebody else in evasion, for example by paying a tradesperson cash when we know that they are not declaring the income. Even if the state does some immoral things with our money, we cannot choose whether we pay tax that is legally due. If we did, the state could not provide those things that are necessary for the common good.
Avoidance involves taking action within the law to pay less tax. This can include saving in a pension fund or giving to charity. The government often deliberately provides these avoidance mechanisms as part of a conscious policy and it would be wholly unreasonable to suggest that it was immoral to use them. The difficulty comes when individuals use quirks in Britain’s 11,000 page tax code – the longest in the world – to try to reduce their tax bill dramatically. That is precisely what has happened in recent high-profile cases such as that of the comedian Jimmy Carr. Is this more aggressive avoidance immoral?
I think we can dismiss the argument immediately that any moral person should pay tax with moral pleasure because tax provides some kind of common thread that helps to bind us together in society. That was the argument in the infamous English and Welsh Bishops’ document Taxation for the Common Good. This thinking was echoed by Anglican Giles Fraser, when he said on Newsnight recently that we should have some kind of common morality about taxation and that paying tax should be a pleasure in that context.
If the state is taking from us a relatively small proportion of our income to provide important goods that can only be provided by the state – as well as helping the poor who are not assisted sufficiently in other ways – then that shared sense of duty, or even pleasure, from paying taxes may well exist.
But, when the state is taking around half our income, it is difficult to understand how there can be such a shared sense of a morality. Is there a shared sense of morality about taxation to finance military action in Afghanistan, abortions or huge areas of the welfare state where policy penalises working, family and saving? I don’t think there is.
The Catholic vision of society is not one of an over-mighty state spending half of families’ incomes, it is of a deeply embedded sense of solidarity within and between all families and between the great network of societies and communities that are served by the state rather than being at the service of the state. If that vision were a reality there might, indeed, be a shared sense of morality about what the state did with its tax revenues.
But, that does not mean that every action to reduce our tax bills is morally laudable. Are there actions that are legal but immoral? Should Jimmy Carr be criticised by politicians and Church people alike? Where do we draw the line?
Personally, I would question the morality of an action that made use of a loophole that allowed an individual to stretch the definition of something beyond any reasonable interpretation. There seem to be some cases where money that is clearly income is being classified as a loan. From a moral point of view this looks problematic. However, it has to be said that many aggressive avoidance vehicles have been specifically established by government to encourage investment, for example in the creative arts. I think such tax breaks should be abolished but we can hardly complain if they are used.
There is also the question of what we do with the money we save from avoidance. After paying tax that is legally due, we should balance the needs of our family, the community and the state. We might legally avoid tax and put the money to better use. Jimmy Carr is, for example, a considerable philanthropist.
So, there is room for wide disagreement about what is and what is not moral tax avoidance and then also room for wide disagreement about whether a particular individual is, after meeting his legal tax obligations, acting with the spirit of charity and solidarity that is demanded of all people. Before heaping moral outrage upon somebody, we should consider their behaviour in the round because tax payments beyond those required by law are just one of the obligations that we owe out of both charity and justice to our families and to others. We should be careful before examining the consciences of others in this area.
There are wider policy issues that we might wish to consider too. With the state spending half of national income and trying to raise this sum in taxes, there are a lot of hard cases. People want exemptions for child care; charities; savings; and so on. We end up with an 11,000 page tax code that only the well-off can negotiate and that can be used by people receiving good advice to avoid tax. High taxes also encourage the black market where tax evasion takes place. The shadow economy is over 10 per cent of national income in Britain, 15 per cent in Sweden and 25 per cent in Greece.
Though the level and complexity of taxes are, in principle, separate issues from those of avoidance and evasion, we should have a tax system that is just, simple and where taxes are easy and convenient to pay. This is only possible with a lower level of taxes than we have in Britain today. But, regardless of the level of taxes, we should pay unto Caesar what is legally due to Caesar whilst, at the same time, treading carefully when criticising those who use legal means to pay less tax. It is not that what they are doing is necessarily morally right. It is just that we should be careful before casting the first stone because there are other uses for our money that can be morally more virtuous than paying taxes.
This article was originally published in the Catholic Herald.