Tax and morality

Is the purpose of taxation payment for common services (defence, health, welfare) or a tool for the redistribution of wealth? That decision, and the balance between them, is a political one. However, there is nothing intrinsically moral about either high or progressive taxation. First, higher rates of taxation may not raise more revenue (the argument would be about the precise positioning on the Laffer Curve). Second, an extra pound raised for the government means a pound less at the disposal of individuals and families or for philanthropic activities. There is no greater morality attached to a government pound than a pound used in support of family life or philanthropic cause. If such spending encourages enterprise, reduces reliance on the state and achieves social purposes effectively and efficiently, then the moral imperative is to reduce taxation.

What about the collection of the tax that is due? There is an absolute moral obligation to comply with the rule of law (in a free, democratic society) including the payment of tax. How much tax should a person pay? Answer – the amount determined by the laws established by the legislature. The UK tax code is complex and lengthy with numerous provisions, allowances, schemes, exemptions, compliance requirements, elections and claims to be made. An individual or corporation who complies with these requirements cannot be said in any way to be acting either illegally or immorally. If Parliament wishes to change the tax legislation then that is precisely what they must do. Legislators legislate. Politicians should be very wary indeed of criticising those who comply with what they have passed into law.

Are there any limits? Yes, there are. It has been long established that artificial transactions or structures with the sole purpose of avoiding tax are irresponsible. HMRC possesses considerable powers to deal with such transactions. Indeed, given that, we should be wary of giving more powers to the tax authorities to pursue taxpayers complying with their legal obligations. High taxation and progressive taxation are not intrinsically moral. There is a balance in society between the rights of individuals to plan their affairs to minimise their tax liabilities, the laws passed by the legislature and the powers of the executive arm (HMRC) to enforce. The current rather sanctimonious debate around taxation has the danger of destabilising this balance by increasing the power of the executive, getting the legislature off the hook for lack of clarity and to the damage of individuals, families and society.

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Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME).