Arctic Monkeys became members of a club they would probably have rather avoided recently. Joining the likes of Take That, Jimmy Carr and Anne Robinson, they became the latest celebrities to be vilified for tax avoidance.
“Criticism should especially apply to the Arctic Monkeys –- whose members have sheltered up to £1.1m in the Channel Islands -– as they’ve long traded on their image as a band of the people,” opined The Guardian.
In my view, such hostility towards tax avoidance looks misguided and unjustified. The onus is on those who vilify tax avoiders to give good grounds for their moral condemnation. Rhetoric, name-calling and expressions of deeply felt disapproval are no substitute for rational arguments. When the attacks are directed towards specified tax avoiders, there is even more need to substantiate them.
Guilty of hypocrisy?
Arctic Monkeys were described in the same article as tax dodgers. The writer, Simon Price, seems to accuse them of hypocrisy. But he does not justify the accusation. He suggests that they do not pay their fair share of tax. But he does not give an indication of what a fair share of tax might be.
“They could do with a reminder of just how much they owe to the state they’re so reluctant to fund,” he said.
How much do they owe the state? How much have they paid to the state in tax already? How much more can reasonably be demanded of them? Are they less reluctant to fund the state than the rest of us are?
It is far from obvious that it is hypocritical simultaneously to appear to be “of the people” and to avoid paying in tax that which one could legally avoid. Do “the people” try to pay as much tax as they possibly can? I suspect that “the people” are happy to avoid paying any tax which they can legally avoid. If they disapprove when other, richer people try to do the same, perhaps it is they rather than the richer tax avoiders who are hypocritical.
It is true that we all benefit from the government providing public services and that tax revenues are required to pay for them. But it does not follow that tax avoidance is immoral (as opposed to tax evasion, which is of course illegal).
To say that tax avoidance deprives society of hospitals and such like is misleading. If we refrain from smoking and drinking, the tax that we avoid paying as a result is money that will not be available for such public services as hospitals. But it does not follow that we are obliged to provide the state with such money.
That more hospitals might be built if Arctic Monkeys and other rich people were to pay more in tax is not a reason for supposing that they have a moral obligation to do so either. You could say we are morally obliged to obey the law and to pay what it requires us to pay in tax. Although there might be a general moral obligation to be charitable, that does not imply a specific moral obligation to pay more in tax than we are legally required to do.
Maxim of equality of taxation
Another of the arguments in The Guardian was: “Rock stars have long held an ambivalent view towards paying their fair share of tax.”
Adam Smith, in his Wealth of Nations, suggested four “maxims with regard to taxes in general”. The first is most relevant here. Smith calls it the maxim of the equality of taxation. It is: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
(Notice Smith was writing before the introduction of income tax. The taxation he had in mind was indirect taxes levied mainly on luxuries and taxation of rents.)
So we might agree that we all have a moral obligation to pay a fair amount of tax, to bear a fair burden of the public finances. Yet it is not obvious that the use of tax avoidance schemes is incompatible with this. To say that the taxation we pay should be in proportion to our revenue is to leave open the question of what the proportion should be.
And bear in mind that taxation is raised in various ways, not merely by income tax. That is another reason why the notion of a “fair share” of taxation is a troublesome one.
Also, if people should pay a fair share of taxation, it must be possible to pay more than their share. Consider, for instance, Paul McCartney. He has drawn little from the public purse and donated a vast amount to it through the direct and indirect taxation that he has paid over the years.
Under a system in which we were required to pay only a fair share of tax, McCartney would surely be exempt from all taxation on his future income and his future spending. Equally if the members of Arctic Monkeys were required to pay no more than a fair share of tax, there is no apparent good reason to assume they would pay more rather than less, regardless of whether they successfully avoid paying some tax.
Plea for political consistency
Speaking of what is fair, it is surely also fair that we examine our own behaviour in relation to taxes. For instance, at the suggestion of my friend and financial adviser, I have taken out an ISA in order to try to minimise the taxation which I am legally obliged to pay. These are hardly restricted to society’s rich and famous. My intention is also to postpone the taking up of my state pension beyond the date of my retirement for the same reason: to pay less tax.
To call me a tax dodger would, I would suggest, be offensive and unfair. There is no obvious difference in moral principle between my attempted tax avoidance and that of Arctic Monkeys. They are far richer and more famous than I am but that is not a relevant moral difference.
In spite of these arguments, politicians are often overtly hostile to tax avoidance. George Osborne called it “morally repugnant,” for example. Yet politicians frequently encourage tax avoidance, and not just with ISAs. They present the UK as a country with comparatively low rates of taxation. They are happy to encourage rich foreigners to avoid heavier rates of taxation in their own countries and to take up their residence here.
In the same way, our politicians encourage us to become tax avoiders too. Consider their support for that curious form of tax avoidance, the gift aid scheme. And don’t forget that many of them supported avoiding paying the poll tax in the late 1980s/early 1990s. There is no logic to attacking Arctic Monkeys or any other rich famous people for doing the same thing on a larger scale.