Hugh McLachlan: Can pay, but shouldn’t pay

In playing to the gallery on tax, the Chancellor has muddied the waters of citizen’s relationship with state, writes Hugh McLachlan

George Osborne said in his Budget speech that he regards “tax evasion and, indeed, aggressive tax avoidance as morally repugnant”. Although his position has received much support – including that from the Rev Ian Galloway, the convener of the Church and Society Council of the Church of Scotland, writing recently in The Scotsman, it is highly dubious.

Tax evasion, unlike tax avoidance, is illegal. The proposal has been put forward that there should be a law against such activity, a general anti-avoidance rule. We should reject it.

The Rev Galloway, who supports the proposal, writes that there should be a “fair sharing of the burden of paying tax… Tax rates need to be set so the wealthiest bear the largest burden”. One might well agree with this. However, it does not establish his conclusion that: “tax avoidance and evasion is morally wrong”.

Furthermore, the question of what constitutes a fair sharing of the burden of public finance remains contentious. What seems fair in one context and when viewed from one vantage point will not seem fair from another. Fair principles will not necessarily lead to fair outcomes. For instance, it is hardly fair that those who pay the most into the public purse often receive the least from it and vice-versa. However, such an outcome might be the consequence of fair principles.

It is not obvious what a fair system of taxation would be like. It is not clear that a fair system would be generally agreed to be fair. There is no reason to assume that we could have a system that was fair, that was agreed to be fair and also raised enough money to provide the services that are thought to be required.

Would a fair system be one in which all adult citizens paid, in absolute terms, the same amount? Would it be one in which all of them paid the same proportion of their incomes in taxation?

Some people argue that the only fair system is one where people increasingly pay a higher proportion of their incomes in tax the higher their incomes become. There are problems, from the point of view of fairness of such a system.

If we allow that there is such a thing as a fair share of the tax burden, it would seem to follow that it is possible to pay more than one’s fair share. However, the principle behind a progressive system of taxation is that no matter how much you have paid, more will be taken from you if you earn more. The notion of a fair share of the burden has no place. Nonetheless, it would be curious to maintain that no matter how much any person pays in taxation, it is, from the point of view of fairness, never enough.

Taxes are necessary for the functioning of the state, from which all citizens benefit. It is reasonable that we are legally required to pay particular taxes under particular circumstances, whether or not the particular taxes are fair.

In general, we have a moral obligation in addition to a legal duty to obey the laws of the land, not merely the good laws or the ones that we regard as fair. We have a moral obligation to pay the taxes that we are legally required to pay, not merely those taxes that we think are fair ones.

However, it is not always morally wrong to break the law. It is not always morally wrong to refrain illegally from paying particular taxes although, in general, there is a compelling moral obligation to pay them.

Ironically, many people who supported the refusal to pay the poll tax and avoided paying it themselves seem to have forgotten their previous moral positions in the face of the current attack on tax evasion and avoidance.

Although we have a moral duty to pay in tax what we are required by the law to pay, we do not have a moral duty to pay more than that amount. To pay, voluntarily, more than we are legally required to might be morally praiseworthy but it is not morally obligatory. To take steps, however, ingenious, vigorous and “aggressive” in order to ensure that we pay no more than we need legally do is, at least in general, morally excusable rather than morally repugnant.

It might even be morally praiseworthy in some circumstances. We need not assume that the state always uses money in a morally more acceptable and creditable way than individuals do. After all, individual people are unlikely to do such things as, say, invade Iraq. It is only taxation that enables the funding of such misguided, wicked schemes. Charitable deeds are often more efficiently, wisely and generously performed by individuals and private agencies than by states.

The payment of taxes should be considered in tandem with the receipt of benefits and allowances. Some benefits, allowances and concessions that the state dispenses seem difficult to justify. Why, for instance, is it considered fair or otherwise appropriate to give free bus travel to all who are 60 years of age or over?

However, it is not always morally blameworthy to seek “aggressively” for legally permitted benefits. Similarly, it is not always morally blameworthy to seek “aggressively” legally to avoid paying taxes. It can be morally permissible to do so. Furthermore, even when it is morally wrong, to call it “morally repugnant” is an exaggeration. A general rule against over-zealous attempts to discover benefits to which one might be legally entitled would be no more or less reasonable than a general rule against tax avoidance.

To avoid paying taxes is not illegal and it is not, in general, morally wrong – far from it. Suppose that someone decided to completely avoid paying taxes on the purchase of tobacco and alcohol by giving up smoking and becoming tee-total. It follow that schools, orphanages, hospitals and so forth that depend on taxation to survive would be, to a minuscule extent, deprived of revenue which they would otherwise have received from his purchases of these items. It might also follow that he will live longer than he otherwise would have done and will impose a greater burden on the state in health care and pension costs as a result of this increased longevity. No matter: his tax avoidance is morally permissible.

Suppose that he goes even further in his tax avoiding strategy and ends up, as the saying goes, paying less in tax than his cleaner does. Depending on how he meets this end, his actions might be morally permissible.

For instance, he might avoid paying stamp duty by refusing to move house. He might avoid paying income tax by putting all of his wealth into a non-interest bearing current account. If he has no income, he will not be required to pay any income tax. If he then lives comfortably, legally and quietly off his life savings, it is not clear why it should be said that he is acting in a morally repugnant way.

He might well feel that, during his life-time, he has paid more than enough in taxation. He might be right.

We are required by neither the law nor by morality to organise our financial affairs such that we maximise the amount we pay in taxation. To avoid paying taxes in general or in particular is not always immoral, far less morally repugnant. It can be morally permissible.

• Hugh McLachlan is professor of applied philosophy in the Glasgow School for Business and Society, Glasgow Caledonian University