Thursday, June 21, 2012

Tax Avoidance

I get really quite annoyed when the media talk about Tax Avoidance and Tax Evasion as if they are the same thing. They're really not.

Here's how it works: the government of the day set a number of rules up, determining how we must all pay tax, and also how much we must all pay. And so, we proceed to pay tax by those rules.

Now, if you are rich, and therefore have access to high-powered accountants (and, let's face it, tax havens), then you get to poke around in all those rules, and thus minimise the tax that you have to pay. You're obeying all the rules, but you're avoiding any tax that the government would be quite happy to take, but don't actually require you to pay.

(In other words, if the rules say you must pay £100, then a tax avoider will make sure he pays £100, and not one penny more.)

Meanwhile, there are a second bunch of people who break the rules, and so don't pay the tax that those rules say they must. These people are evading the taxes set by the government.

(In other words, if the rules say you must pay £100, a tax evader will pay £90, or £50, or whatever.)

Those are quite different things - on one hand we have people scrupulously avoiding paying more than the rules say they must, and on the other we have people who are deliberately not paying by the rules.

It is not "morally wrong" for people to use the existing rules to avoid the government taking more money than their own rules say they can. Frankly, what's morally wrong is the government taking any more money than their tax rules say they should - if their rules say they can take £100 and they take £105, how is that not stealing, especially given that they're taking that money against our will, and backed by the threat of force?

Now, I understand that there's a strong moral argument for paying taxes. Equally, there's a strong argument that those who have more should pay more. And, further, there's a strong argument that actually, we should all be paying more. I get that.

But if that's the case, and if the government want people to pay more, then they should change the rules accordingly. If they don't want people paying accountants to find them loopholes to avoid tax, close the loopholes. If they want people to pay more tax, then change the rules so people have to pay more tax.

The government set the rules. If they find that people are using the rules in a way they don't like, they have the power to change those rules.

(Oh, and incidentally, it doesn't matter if those loopholes are "using the rules in a way the government didn't intend". This isn't some game, with polite applause for displaying good sportsmanship. What the law intends is almost entirely irrelevant next to what the law actually says. The powers-that-be really need to start doing a better job writing good laws, and actually reading them before they pass them into law.)

3 comments:

Chris Brind said...

"And, further, there's a strong argument that actually, we should all be paying more. I get that."
... well, that's a socialist thing.. and don't get me wrong, I'm actually in favour of that, but there are good arguments against it. You might find this interesting: http://www.mises.ch/de/aulaartikel.php?id=13

Steph/ven said...

Oh, indeed. Strong arguments either way - it was just that since I was talking about tax avoidance, it was the "raising taxes" argument that was relevant.

When it comes to Socialism, my politics are... complex.

Chris Brind said...

Likewise!