TOPIC GUIDE: Tax Avoidance

"Tax avoidance is morally wrong"

PUBLISHED: 01 Sep 2012

AUTHOR: Tom Slater

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INTRODUCTION

In contrast to tax evasion [Ref: Investopedia], tax avoidance is the entirely legal practice of arranging one’s finances in order to pay the least amount of tax possible; it has recently been cast as a morally dubious practice. In 2010, a series of protests orchestrated by UK Uncut were aimed at high street chains such as Vodaphone and Topshop, when it was revealed that they were paying virtually zero per cent in corporation tax [Ref: Guardian]. They argue, as have many commentators, that it is morally wrong of businesses not to contribute to the government’s coffers as they are depriving the less fortunate of state services, which are now facing rigorous cut backs [Ref: UK Uncut]. More recently, the revelation that many high-profile celebrities were involved in schemes which dramatically reduced their income tax has led to even more indignation, with Prime Minister David Cameron denouncing such behaviour as ‘morally wrong’ [Ref: Independent]. While the government’s tacit approval of tax avoidance schemes has led many to deem Cameron’s outburst hypocritical, the sentiment remains that taking advantage of the system is a distinctly immoral practice [Ref: The Week]. However, others claim that the criticism aimed at tax avoidance is unjustified: if lawful money management is so morally reprehensible, it is the law that should be changed [Ref: Guardian]. Others argue that the shameless scapegoating of individual corporations or celebrities only distracts us from the true causes of the economic crisis [Ref: Big Issue]. No matter what position one takes, morality has become an increasingly prominent issue in the tax avoidance debate.

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Tax Avoidance DEBATE IN CONTEXT

This section provides a summary of the key issues in the debate, set in the context of recent discussions and the competing positions that have been adopted.

‘...all in this together’?
In his speech at the 2009 Conservative Party conference, Chancellor George Osborne stated that, in these hard economic times, we should consider ourselves ‘all in this together’ [Ref: Telegraph]. This idea seems to underpin the moral indignation surrounding the recent tax-avoidance scandal. In this atmosphere, the revelation that retailers were operating out of tax havens [Ref: Guardian] while celebrities were channelling their income into tax-avoidance schemes [Ref: Accountancy Age], seemed to run against the grain of this communal idea of us all being in it together. Many speculate that recovering funds from wealthy tax avoiders would allow the welfare system to avoid the cuts which they are now facing in the Coalition’s attempt to tackle the government deficit. Thus, wilfully avoiding tax is morally wrong as it directly deprives the less fortunate of services which are now needed more than ever [Ref: Guardian]. On the other hand, there are those who have suggested that the extortionate rate of tax levied against the highest earners inevitably leads them to participate in tax-avoidance schemes,  in order to preserve their businesses or personal wealth [Ref: BBC News]. Furthermore, others have argued that aggressive taxation discourages businesses from growing to their full potential, as higher turnover will only mean reaching a higher tax bracket [Ref: Telegraph]. From this perspective, the morality of tax avoidance isn’t black and white. If long-term prosperity is dependent on growth, which is in turn fuelled by a thriving businesses, then tax avoidance is a necessary means to continue the creation of wealth and jobs in an otherwise inhospitable climate. Hence as one commentator argues: ‘[T]he best way to grow the economy, and so increase tax revenue, is to cut taxes to the lowest level possible… high tax rates are not only economically wrong-headed, they also drive law-abiding citizens to take advantage of schemes that have no purpose other than minimising their taxes.’ [Ref. Express].

Immoral individuals or an immoral system?
In June of 2012, a wave of criticism led comedian Jimmy Carr to withdraw from a scheme which had enabled him to pay as little as one per cent income tax. Although he had done nothing illegal, he apologised for his actions, stating that he had made a ‘terrible error in judgement’ [Ref: Express]. In the wake of this, the government put forward legislation that would allow the HMRC to ‘name and shame’ tax avoiders, underlining the now common conception that tax avoidance is the mark of an immoral individual [Ref: Huffington Post]. However, many feel uneasy with this type of condemnation. For instance, Reverend Peter Mullen writes: ’ Reasonably and legitimately, within the confines of the law, to avoid paying more tax than one needs to pay is no more dishonest than, say, the effort of a working man to sell his labour to the highest bidder; or for another to invest his money at the best rate of interest’. In denouncing legal tax avoiders we are suggesting that law and morality are separate entities and in doing so we are ‘undermining the principles of any rational social ethic’ [Ref: Telegraph]. As such, many commentators have argued that, if the tax laws are so questionable, they should simply be changed [Ref: Accounting Web] as the needless denouncement of individuals only ignores the wider ‘systemic’ issues at play [Ref: Guardian].

Is paying tax a moral issue?
As the famous American jurist Oliver Wendell Holmes once said, ‘Taxes are the price we pay for a civilised society’ [Ref: Wiki Quote], and recent events in the UK have fostered this notion that tax compliance is the mark of a moral and responsible citizen. For instance, during the 2012 London mayoral election, the three leading candidates were moved to release their personal tax details [Ref: Telegraph]. Similarly, when it was revealed that Gary Barlow was involved in a tax avoidance scheme, there was a clamour for the singer to return his recently awarded OBE, as he had failed to uphold the standards of citizenry which the honour represented [Ref: BBC News]. Columnist David Aaronovitch argues that how one pays one’s taxes is a matter of conscience, an indication of one’s morals: ‘One cornerstone of moral systems is imagining what would happen if everybody did the same thing. If we all found a Carr-style way to avoid paying our taxes, would we be a better or a worse society? The answer — criminals roaming unhindered, the borders unpoliced, children uneducated, the sick left to die at home — is obvious, and that should be the basis for a conscience-based decision on paying tax.’ [Ref: The Times]. In contrast, some have suggested that making how much tax one pays a moral and political issue reduces morality and politics to mere accountancy [Ref: spiked]. Others have asserted that it is ‘morally wrong to suggest to pupils that paying high taxes is a good thing’ [Ref: Daily Mail]. This position is echoed in the diaries of George Orwell, as in 1940 he wrote: ‘ would dodge paying the tax if I could. Yet I would give my life for England readily enough, if I thought it necessary. No one is patriotic about taxes’ [Ref: Orwell Diaries].

ESSENTIAL READING

It is crucial for debaters to have read the articles in this section, which provide essential information and arguments for and against the debate motion. Students will be expected to have additional evidence and examples derived from independent research, but they can expect to be criticised if they lack a basic familiarity with the issues raised in the essential reading.

FOR

Why Cameron was right to condemn Jimmy Carr

Richard Morris New Statesman 21 June 2012

Pay tax according to conscience, not the law

David Aaronovitch The Times 20 June 2012

Tax, that unlikely window on our politicians’ souls

Marina Hyde Guardian 6 April 2012

It’s time to hold Ken Livingstone to account

Nick Cohen Observer 4 March 2012

IN DEPTH

Labour needs to stop moralizing about tax

Peter Watt Labour Uncut 2 August 2012

Paying tax is not a moral issue

Mohammed Amin Conservative Home 25 July 2012

Moral Maze: Tax Avoidance

BBC Radio 4 24 March 2012

KEY TERMS

Definitions of key concepts that are crucial for understanding the topic. Students should be familiar with these terms and the different ways in which they are used and interpreted and should be prepared to explain their significance.

BACKGROUNDERS

Useful websites and materials that provide a good starting point for research.

Is David Gauke a member of UK Uncut?

Tom Bailey spiked 31 July 2012

Reasonable tax planning or ‘morally wrong’ tax avoidance?

Francesca Lagerberg Grant Thornton 5 July 2012

Time for tax dodging multinationals to learn from Jimmy Carr

Joe Ware Huffington Post 23 June 2012

Cameron should avoid blind sanctimony on legal tax avoidance

Abhijit Pandya Daily Mail 22 June 2012

Tax avoidance: The most common schemes

Kevin Peachey BBC News 21 June 2012

When does tax avoidance become tax evasion

Philip Fisher Accounting Web 21 June 2012

George Osborne’s new plans to tackle tax avoidance

Fiona Fernie BBC News 28 March 2012

Tax Avoidance costs UK economy £69.9 billion a year

Mark Jenner New Statesman 25 November 2011

ORGANISATIONS

Links to organisations, campaign groups and official bodies who are referenced within the Topic Guide or which will be of use in providing additional research information.

IN THE NEWS

Relevant recent news stories from a variety of sources, which ensure students have an up to date awareness of the state of the debate.

Tax evasion aided by global inertia

BBC News 8 August 2012

Ken Livingstone: The truth about that tax affair

Evening Standard 19 April 2012

UK tax gap narrows to £35bn, say HMRC

BBC News 21 September 2011

AUDIO/VISUAL

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