The “Paradise Papers” leak several days ago has got a number of celebrities in hot water with regards to certain investments in offshore schemes. Those involved include Lewis Hamilton, Bono, Lord Ashcroft and even the Queen and Prince Charles. With the Paradise Papers having seeped into public awareness, many big names have been associated with the act of tax avoidance. The obvious issue with tax avoidance is that certain extremely wealthy people are able to harness the legal code, or navigate the regulatory matrix of numerous jurisdictions, in manners unavailable to the common man to lawfully shirk on various aspects of taxation. Some, too, would go so far as to say that this is not a problem of legislation in these jurisdictions but rather the immorality of those that engage in these schemes quite simply for the reason that they ought to pay these taxes like everybody else to contribute to public schools, roads, hospitals and so on.
Of course, the issue is complicated. Perhaps not as complicated as the laws surrounding these taxes in question, but nevertheless: complicated. There are various chambers of thought in which to judge the issue: the legal, the moral and the political. When sincerely consulting these three regions of contemplation, rather than being a sinister scheme for those of lavish fortunes, it is clear that tax avoidance is not diabolical or despicable. In fact, there are moral or entirely understandable aspects of it which extend to all people in the country. The depiction of tax avoidance as being a heartless scandal of selfishness seems to be more of a ploy of either distracting people from the incompetence of their leaders, or a continuation of a ubiquitous state narrative of how everybody is meant to fall in line to propel their governments’ ever-growing ambitions.
The Cayman Islands – British Overseas Territory associated with tax avoidance schemes
Ethically speaking, what really is tax avoidance at its core? Following the law to minimise one’s taxes. What really is taxation, though? Whether or not we decorate the true meaning in robes of moral grandeur and civilised sophistication, taxation is the forced payment of money to a government, in short. The concept that there is honour in paying taxes, then, seems to be dwindling when it is not a moral venture but rather one that is demanded of through the threat of a punishment. The fact that an individual could exploit the law to slip through the holes of a taxation regime, literally to retain more of their own earned money, seems to be no fault of the dodger themselves. It would rather seem to be a predicament of statecraft and legislation.
Politicians either are not competent enough to patch up the cracks in the tax code, or they simply do not want to. It is really any wonder, given the traditional nature of our political system? They are likely to levy considerable benefit from the donations of those that will likely exploit these laws, and there seems to be no demand for arrangements that lead power away from independent states for better regulation of globalised taxation systems. This is especially following Brexit. In fact, given the rather frequent leaks of MP expenses scandals whereby politicians revoltingly claim the people’s taxes for entirely personal gain, avoiding taxes would suddenly seem entirely logical.
The problem of Paradise Papers soon materialises as merely thus: only wealthy people are able to avoid taxes as they can afford the warranted tax lawyers and financial advisors. It is a problem of inequality. This is an entirely reasonable assessment of the reality of tax avoidance. This too is tacitly on the grounds that the poor would avoid taxes too if they could. If you were given the option of paying fewer taxes and you refused every single time the option appeared, I wouldn’t believe you. If you, too, especially as a poorer person, were asked if you would like to receive state welfare funds, entirely legally, by appealing to blind spots in legislation, I’d also find it baffling if you were to perpetually rescind this proposal. Is there, though, a moral difference between avoiding taxes and manipulating welfare laws? No. There is only an issue if there is fraud or fabrication involved. If we focus our grievances towards those that play their hands incredibly well (and legally) to maximise their holdings, we ignore the root of the problem and even encourage the preservation of that problem itself.
If we pelt the tax avoiders with shame and scoff, we do not change their incentives or the laws at hand. To do this is to entirely miss the point: if we truly do want to equalise the poor and the very wealthy under the eyes of the law, we will never do it by hurling our anger at the followers of the law. We should, rather, hurl it at the makers of the law, if anybody at all. While it is true that one could be immoral by following the law in a particular country (I could practically write a book about that), there is no immorality in owning more of your own money when you can. This is because you have every right to do this as you acquired it legitimately. The state’s claim upon your wealth is not made morally but through necessity. And if the state fails to fulfil their requisitions upon your property through poorly fashioned laws, they cannot turn to you to rectify their own creation.
This is assuming, though, that there are not difficult facets in the aim of preventing tax avoidance. This is where grim political realities for the left must rear their faces. There are not only very obvious difficulties of the feat itself of ending tax avoidance with international jurisdictions involved, but also the issues it would pose for the sizes of resultant government budgets themselves, even if more earnings of the wealthy as a proportion were to be harvested. If the left are brazen about funding state welfare programmes like “free” tuition and more social housing, closing tax avoidance loopholes would very clearly denigrate their demands. With fewer wealthy people coming to the UK for tax-easing purposes, the less they will pay in taxes at all.
It is the same when the state increasing the top rate of tax: the wealthy will dwell elsewhere, bringing their taxable wealth and potential jobs with them, or simply never come here, having been rightfully scared off. The frivolous left could fix this, if they really wanted to. They could willingly pay more taxes if tax avoidance cannot practically be ceased. They could, too, while they were at it, lay their tapered eyes upon the statistics of taxation to realise that those that are most likely to dodge taxes are those that contribute the most in taxes in the first place. In this sense, even though the wealthiest in society can sometimes pay minute morsels in corporation taxes, they are still feathering the nests of their host society in manners far and away more significant than the rest. The closure of these tax avoidance possibilities, then, couldn’t at all be what the hypocritical Bono might say was in the name of love if it sabotaged the state machinery by which the poor are aided.
In this sense, tax avoidance is not only a feat not worthy of true moral indignation, but the difficulty, drenched in all its political, financial and legal difficulties, appears to be here to stay. If anybody is to be scorned, it is the politicians that shamelessly call for these schemes to be ended yet, when landed into power, forget entirely about the issue. The left must be mindful, too, of the fragility of such laws when perhaps their biggest source of energy for their goals can be obliterated through the prism of good intentions. The best we can hope to do to equalise the poor and wealthy is to decrease taxes on everybody and remind ourselves of how much tax money tends to be squandered in the first place at the clumsy hands of our politicians.