Is 'Tax Dodging' Immoral?

            Recently, I was exposed to an interactive piece on the state-owned Canadian Broadcasting Corporation’s (CBC) website about how rich people use tax havens in order to pay less tax (http://www.cbc.ca/news/interactives/offshore-tax-havens/). Throughout the piece, people who do this are labelled “tax dodgers”, “tax cheats”, and “ethically challenged”. Are these labels justified? Is the practice of employing, even ‘illegal’, means in order to pay less taxes morally wrong?

            

           Before attempting to answer this question, let us first recall what I concluded in my earlier post on Morality and Utility (http://thinkingabouthumansociety.blogspot.ca/2013/03/morality-and-utility.html):

“1. At its root, any good moral code must be based on some kind of utilitarianism.

2. The moral code that, if followed consistently by many people in a society, results in the greatest facilitation of peace and increasing material prosperity, is the one that is objectively good, except when judged by murder-loving psychopaths or ascetics.

3. Though the root of a good moral code is ultimately utilitarianism, the only way that a good moral code can have desirable utilitarian effects is when it is treated not just as a means to greater utility, but as an end in and of itself by individual actors. This works with human psychology, in that it seems that humans feel a need for some kind of moral code so that by following it, they can think of themselves as ‘good’, as ‘righteous’, or as ‘heroes’. The job of the social thinker is to make sure that a moral code with positive utilitarian effects fulfils this role rather than one with negative utilitarian effects.”

            

           Turning now to taxation, there are three points we must keep in mind when considering it. Regardless of what the proceeds of taxation are used for, the act of taxation itself is:

1. An aggressive, physically coercive act.

2. If we believe at all in private property rights, taxation is a violation of them, being a coercive expropriation of the private property of individuals by the government.

3. Thus, taxation is not consonant with the pure principles of individual freedom and private property.

            

            Turning now to the moral status of ‘dodging’ taxes that an individual has been assessed for, assuming that the political system assessing the taxes is a democracy of some kind, there are essentially three options:

1. It is a citizen’s moral duty to pay whatever taxes the democratic government of the territorial area he is living in assesses him for, and immoral to try to get out of paying these assessed taxes.

2. It is a citizen’s moral duty to pay taxes that will support any beneficial actions of government, but not to pay taxes that will support harmful or unproductive actions of government.

3. The act of taxation, being coercive and a violation of private property rights, is immoral itself, so trying to get out of paying taxes cannot be immoral.

            

           Let us assess these options in turn. Option #1 is the one adopted by the CBC piece mentioned above and is the one that most democratic governments in the modern world push for. For anyone who believes in the beneficial effects of individual freedom and private property though, this option is very problematic. A good moral code is one based on a general principle that, if followed consistently, will result in subjectively better results for most members of the human race than the following of any other such moral code. As any reader who has read a few of the posts on this blog will know, I am of the opinion that the general principle of individual freedom and private property is, on the whole, much more conducive to human peace, prosperity, and well-being, than the rival general principles of egalitarianism and socialism, or of elitism and special political privileges. (for more on this, see: http://thinkingabouthumansociety.blogspot.ca/2013/04/dynamic-versus-static-political-ideals.html).

            

           Option #1, due to the nature of taxation discussed above, is not consonant with the general principle of individual freedom and private property. Rather, it adheres to the social-democratic/democratic absolutist principle that, so long as the leaders of government are elected by ‘the people’, they have the right to violate individual freedom and private property rights at will, with no limits. The individual supposedly has a moral duty to obey ‘the people’s representatives’, and if he does not like their commands, he must wait for the next election and vote for some other such representative, in the hopes that other people will join him in his protest.

            

           Option #1 basically implies that whatever the majority’s ‘representatives’ decide to impose on a minority is, by definition, morally right, and it is morally wrong for the minority to resist it. There is no logical reason why this monstrous principle should be confined purely to taxation and economic issues. If a democratic government, for instance, declares ‘sodomy’ (homosexuality) to be a crime because it is allegedly ‘immoral’, are homosexual people by definition immoral because the democratic government decrees it so? The same applies to taxation. If an individual thinks that he should be able to keep at least 80% of his income for himself, but the government says otherwise and wants to take more than 20% in taxation, is it immoral for the individual to try to get out of paying the extra taxes?

            

           Advocates of the morality of any level of taxation will argue that the difference between these two cases is that taxes are paid to fund ‘services’ that the government provides, and thus everyone must pay his ‘fair share’ in order to defray the costs of these government ‘services’. But why is whatever the elected representatives decide to impose on people as taxation necessarily their ‘fair share’? How can you determine someone’s ‘fair share’ of the costs of a service that are provided whether he wants the service or not? What could possibly be the ‘fair share’, besides nothing, which an absolute pacifist should contribute to his government’s military expenditures, or which parents who sends their children to private school should contribute to their government’s public schooling expenditures? If a modern Robin Hood is robbing the houses of people living in a rich area in order to distribute the loot among slum dwellers, is a rich person who takes better security precautions and prevents his house from being robbed, immoral for being guilty of avoiding paying his ‘fair share’ of the Robin Hood dues? How about if the robber is of a different bent and plans to use the stolen funds to fund a spectacular fireworks display to entertain the inhabitants of the rich area, is the security-conscious rich person in this case guilty and immoral for not paying his ‘fair share’?

            

           To answer any of these questions in the affirmative would be to confirm either the general principle of egalitarianism or of elitism and special privileges. For those who think that the general principle of individual freedom and private property is, on the whole, more conducive to human well-being than those others, Option #1 is unacceptable.

            

           Option #2 is trickier to dispose of, even for those who generally believe in the freedom principle, but I think that it is still not the right option. In fact, Ludwig von Mises, a staunch defender of freedom and private property, seemed to have believed in Option #2. He objected to the statement that ‘government is a necessary evil’, preferring to compare the government to sulfuric acid, useful and eminently suitable for some purposes (defence, law, and order), but completely unsuitable and destructive when used for other purposes (general economic interventionism). Though he did not talk about how taxes should be assessed in his ideal free society, he implied, with the argument above, that any taxes levied to fund useful government activities would indeed be moral.

            

           The main problem with Option #2 is that it is too ad hoc and situational to serve as the basis for a good moral code. In order to serve its purpose as a behaviour-modifier and in order for it to be accepted by the human mind as a fixed standard for evaluating actions, a moral code must be consistent, relatively simple, and based on universal, general principles. Accepting Option #2 essentially means agreeing with the statement that: ‘robbery is immoral and people may properly take steps to avoid it, except when a government does it and they use the proceeds for a good cause, then it is moral to rob and it is immoral to try to avoid this robbery’.

            

           This statement, if it can be demonstrated that the positive effects of the good cause outweighs the negative effects of the taxation levy, does indeed adhere to the utilitarian principle for evaluating the morality of actions. The problem with it is that it does not affirm a universal-enough general principle to form the basis for a behaviourally-useful moral code, which must be consistent and relatively simple. It also gives the cloak of morality, even if only temporarily, to anyone who proclaims that the coercive measure he is proposing would be in ‘the general interest’.

            

            Thus, we are left with Option #3: declaring taxation to be an inherently immoral action, and thus finding no moral fault with the person who seeks to avoid these taxes. This is the option that anarchists would choose unhesitatingly, as declaring taxation to be immoral leads to the government being declared an immoral institution, which anarchists want to completely eliminate anyway. For minarchists like myself though, who think that some limited government interventions, particularly in defence, law, and order, and perhaps to provide a minimal social safety net, could be useful and beneficial to humanity, it becomes more complicated.

            

           The answer, I think, is to somewhat separate (though not completely separate), policy from morality. For example, I think that while taxation, being an aggressive coercive act and thus not consonant with the generally beneficial general principle of individual freedom and private property, should be labelled immoral, if the proceeds are used to fund courts and police to keep potential life and property violators (criminals) at bay, this can be considered inflicting a lesser evil to fight a greater one. Similarly, if the  proceeds of the immoral taxation were used to fund the maintenance of a bare-bones social safety net, whose sole purpose was to guarantee that people will not die due to poverty (unless perhaps they have a disease that is ludicrously expensive to cure or something), than I would also consider this to be inflicting a lesser evil (coercive taxation) to fight a greater one (the possibility of poor people dying in the streets and the political ammunition this gives to egalitarians who trumpet this theoretical possibility in order to mislead people into supporting their egalitarian schemes).

            

            Thus, contrary to Mises, I think that the concept of government action being an ‘occasionally useful evil’ is a proper one. I would not join the ad hoc utilitarians who claim that ‘whenever I deem a certain action to be useful to ‘society’, it is by definition moral’, nor would I join the moralistic anarchists who claim that morality, based on the pure principle of individual freedom and private property, must always trump expediency in policy-making. I would not even join rule utilitarians like Mises who imply that, because the government confining its activities to defence, law, and order can be formulated as a general rule that is conducive to human well-being, any governmental actions associated with providing defence, law, and order are by definition moral.

Rather, I would adopt the deepest form of rule utilitarianism as a basis for a code of political morality (ie. based on the pure general principle of individual freedom and private property). But, for policy decisions, I would adopt a slightly less deep form of rule utilitarianism to aid in making decisions, allowing exceptions to the pure general principle of individual freedom and private property, as long as these exceptions can be formulated as general principles themselves that can be demonstrated to be beneficial and that do not pose too great a danger of being used as a precedent for more and more exceptions to the pure general principle. Allowing the government to control the defence and legal sectors, as well as perhaps to provide a minimal social safety net, could be some such limited exceptions to the pure general principle of individual freedom and private property that can be formulated as general principles themselves.  

            

           An advantage of this formulation is that, if the moral code is adopted by many members of the populace, it will hopefully make people think twice before making proposals that will violate individual freedom and private property, in the name of the so-called ‘common good’. Another advantage is that we can affirm the general immorality of physical coercion and taxation, without necessarily committing ourselves to following this condemnation to its logical policy conclusion: anarchism, which may not be the way of organizing society that is the most conducive to the prosperity and well-being of humanity. Rather, the immorality of a government measure (the fact that it violates the pure general principle of individual freedom and private property) will hopefully present itself as a cost of the measure to most people, while not necessarily having to override all of the benefits to be expected of the measure.

            

           Thus, what of the avoider of taxes, what is his moral status? We must conclude, based on the foregoing, that the label of immorality should never be attached to his actions. Even if it could be demonstrated that the government measures funded by the taxation assessed on the populace were more generally beneficial to humanity than harmful, rather than at present where most government measures funded by their excessive taxation levies are unnecessary or downright harmful, the label of immorality should still not be attached to tax avoidance. To call tax avoidance immoral is to deny the fundamental general principle of individual freedom and private property, that individuals should be free from physical coercion and their legitimate private property should not be expropriated. This fundamental general principle is the one that I think must underlie the moral code that would be the most useful and beneficial code for the peace, prosperity, and well-being of humanity in general.

If on a policy-level, we feel that a government measure funded through taxation would be generally useful on a long-term basis, we need not leap to calling taxation moral and tax avoiders immoral, thus opening the floodgates to the degeneration of political morality. Rather, we should treat taxation as an evil, but as an occasionally useful evil, and expect government tax collectors to treat it as such, not act as if they had the moral high ground. One could argue that defeating the Axis powers militarily in WWII was something that, on net, was beneficial to the world. But that does not mean that one has to argue that the killing of German, Japanese, and Italian civilian that necessarily occurred during the war was morally justifiable. The end does not  justify the means, though sometimes it is best to pursue the end anyway. A beneficial end does not automatically make any means employed towards that end morally good themselves. This is how taxation for, on net, beneficial government ‘services’ should be treated: as immoral means employed towards a beneficial end. No matter what the end, the victims of the immoral means should not be labelled immoral for resisting these means. Therefore, tax avoidance is not immoral, and the CBC writers responsible for the piece on tax havens need to reconfigure their moral compasses.