Libertarianism and Tax Avoidance

Tax avoidance intermittently comes into the spotlight in contemporary political debate. The left decry businesses dodging tax as immoral, whereas the right generally disagree. A common view among libertarians is that we must emphasise the difference between tax avoidance and tax evasion. The former is legally minimising the amount of tax you owe, whereas the latter is actually breaking the law to pay less tax. As usual, this means libertarians think they can draw a definitive line as to where policy should be and embrace a purely logical belief system, while their opponents are just moralising. And, as usual, this isn’t the case – turns out libertarians just have a different value system embedded beneath their argument.

The line between tax avoidance and tax evasion is whether or not the methods used are legal. Hence, the only way you can believe tax avoidance is OK while tax evasion isn’t is if you believe law is the appropriate moral benchmark by which to judge whether actions are ‘right’ or ‘just.’ But this is a completely anti-libertarian position: why should the guy with the bigger gun be able to tell someone else what to do? Or the tyrannical majority? Surely laws should be judged based on what they achieve or symbolise, rather than just being accepted because they are laws?

As it happens, I agree with this position; laws can be unjust (apartheid, slavery) and given the opportunity to disobey an unjust law, people should, whether individually or en masse. So if people/institutions are not morally obliged to obey the law just because it’s the law, surely the question of paying tax becomes a judgment call? This puts libertarians right where they don’t want to be: in the hazy world of morality. And the only position I can see them endorsing is that one should pay as little tax as possible.

So, whereas most people’s value systems tell them that if a corporation pays £8.6m over 14 years to a country where it made £3bn in sales over the same period, that’s unfair. Libertarians make out – perhaps because they really believe – that these people are just being emotional and illogical  But really the difference is not one of nature, but merely of degree.

P.S. readers may notice a big similarity between this post and my post on Milton Friedman and corporations. In fact, similar problems can be found throughout libertarianism – it seems they do believe strongly in the rule of law with laws they approve of. In this way, many libertarians actually have a strong authoritarian bent.

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  1. #2 by Aziz on December 9, 2012 - 10:46 pm

    The idea of libertarianism as a purely logical or amoral decision making framework is, to put it impolitely, f’n stupid.

    I am socially liberal and economically liberal (i.e. libertarian) because of my value system, which values choice and decentralisation.

    • #3 by Unlearningecon on December 10, 2012 - 1:32 am

      I think it’s more of a Friedmanite or neoclassical position that libertarianism is just built on truth or cold logic. Austrians tend to be more upfront about their value judgments.

  2. #4 by Min on December 9, 2012 - 11:40 pm

    “But this is a completely anti-libertarian position: why should the guy with the bigger gun be able to tell someone else what to do?”

    Really? I thought that libertarianism said that each guy has the right to procure the biggest gun that he can, and that the guy with the bigger gun wins — unless that guy is the government. (Do they make an exception for dictators? Friedman did, didn’t he?)

    Or is there a brand of libertarianism that says that private coercion is bad, too? How does that differ from liberalism?

    • #5 by Unlearningecon on December 10, 2012 - 1:34 am

      Hah, good point. I find libertarians generally regard private coercion as negligible or, as I say, presuppose a sort of police state where the government stops every activity they disapprove of and hence it’s not up for discussion.

  3. #6 by john77 on December 9, 2012 - 11:56 pm

    “As usual, this means libertarians think they can draw a definitive line as to where policy should be”
    NO – this means that they, and all others who make a point to distinguish between tax avoidance and tax evasion, do not discuss where policy *should be* but what the law actually *is*.
    I am not a libertarian but I see no need to slag them off on the occasions where they are correct.

    • #7 by Bill Murray on December 10, 2012 - 12:27 am

      well the libertarians do rather forget how laws are made. If one can make previous tax evasion into tax avoidance by taking one’s money and buying new law, it seems highly problematic on the issue of correctness.

      • #8 by Unlearningecon on December 10, 2012 - 11:56 am

        Yes, to libertarians the law in their world would be absolute and incorruptible, for reasons they’ve yet to specify.

    • #9 by Unlearningecon on December 10, 2012 - 1:16 am

      Don’t you think the blogger I linked to at the ASI is saying what corporations *should* do with statements like:

      Corporations do not have a ‘moral duty’ to pay more tax than they are required to pay under UK law.

      ?

      • #10 by john77 on December 13, 2012 - 5:58 pm

        Firstly, Whigs are not libertarians.
        Secondly, he/she is arguing that that corporations should not pay more tax than necessary on the grounds that paying tax detracts from their ability to perform their primary purpose, which is prescribed by law and their articles of association, a legal document.
        Thirdly, you need to be very careful about advocating disobedience, mass or individual, of an unjust law: I am shortly to have a significant minority of my savings confiscated to overpay female annuitants: do you want a greybeard revolt against the ECJ, barricading it with zimmer frames :-) and all young women to drive without insurance?
        Fourthly, in the Christian and post-Christian (as distinct from anti-Christian) societies, there is an assumption that we have a moral duty to obey the law unless it is demonstrably evil. That does NOT mean driving at 30 mph when the guy a few yards in front is doing 20mph!! For neil’s information, UK law does not prescribe a speed at which one must drive, just a speed which one may not exceed.
        Fifthly, corporations are supposed to pay tax on profits, not sales
        FYI, I regard Jimmy Carr’s tax dodge as unethical and his taking part in an anti-Barclays advert when his tax-dodging was far worse than theirs as immoral;.but I don’t consider my pension or Gift Aid contributions as immoral since.Parliament has deliberately passed laws to encourage me to make them.

      • #11 by Unlearningecon on December 14, 2012 - 2:04 pm

        I think saying they should pay as little tax as possible is the libertarian position. But the idea that there are ‘false premises’ within the debate, and there is no morality involved, seems to me to be wrong.

      • #12 by john77 on December 17, 2012 - 12:48 pm

        I was *not* saying there is no morality involved, just that libertarians aren’t indulging (and “indulging” is what a lot of the debaters do) in a moral argument but relying on the law.
        I should agree that libertarians want to minimise the tax that *everyone* pays, not just themselves, because they want to minimise the power of the state but that is not the same as trying to dodge taxes to place the burden on someone else.

  4. #13 by TheUxbridgeGraduate on December 10, 2012 - 12:05 am

    The distinction between tax evasion and tax avoidance is not so clear cut as your blog suggests. Tax evasion may or may not be compliant with tax legislation. Tax avoidance always is compliant because the legislation intentionally permits the tax saving opportunities from which tax avoidance benefits.

    Tax evasion should be distinguished from tax fraud. Lumping evasion and fraud together is erroneous. Tax fraud is criminal. Tax evasion is the attempt to outwit the tax authorities whilst remaining compliant with tax legislation. Tax evasion schemes may or may not succeed in achieving compliance. If and when they fail to achieve compliance such schemes will be unlawful but not criminal. This is because the ingredient of deception will usually be absent. Tax evasion schemes may be declared unlawful after they have been devised. For example, invoices between a parent company and its subsidiary in a cross border transaction may be ruled, for tax purposes, as non-compliant with legislation if those invoices do not reflect market values and the effect is to transfer taxable profits to a lower tax jurisdiction..

    • #14 by Unlearningecon on December 10, 2012 - 11:58 am

      That’s interesting, but I think it presents more of a problem for libertarians than me. As I say – and as you can see in the blog I link to – libertarians like to draw a clear line, whereas personally I think it is a moral judgment.

  5. #15 by Roman P. on December 10, 2012 - 7:20 am

    You’re touching a very interesting issue of whether those who are economically liberal and claim themselves to be libertarians are also *socially* liberal (and not authoritarian). A lot of them might not be.
    As is known from the works of Robert Altemeyer, those on the ‘right’ are usually authoritarian, i.e. they believe in a subjugation to the powerful authority, fear outsiders and want to suppress minorities. They are also more aggressive and less trusting, in general. A lot of people “on the right”, if asked, will probably say they are right-wing because they believe in the economical freedom, but it seems there is also some correlation with the views that support political homogeneity, religious intolerance and unquestioning support for those in positions of power (judging from my observation of GOP and other right-wing movements). SOME will, however, identify themselves as economically liberal AND politically liberal as well (libertarian wing of the Republican Party, for example). Now, there arises a question.
    Are they fundamentally different from the right-wing authoritarians? It might be the case that they are so libertarian because they are so socially aggressive, even more aggressive than the normal right-wingers. They want economic freedom because they don’t like to lose money and power (on taxes, regulations, etc) and they want political freedom (and the dissolution of the social/political institutions) because they don’t want to be oppressed: they want to oppress the others.
    I think this might explain why some libertarians believe the robust institutions of the modern society (where they feel they are disadvantaged) ought to be replaced with anarcho-capitalism (where they think they’d have an advantage), but the said anarcho-capitalism to be enforced with an iron hand of dictator. Maybe there even are sociological studies that support this idea; I don’t really follow this area of social science. But I think it might be interesting to study how libertarianism correlates with the social aggression and the sociopathy.

    • #16 by Unlearningecon on December 10, 2012 - 11:55 am

      In many ways libertarianism is, like conservatism, really about defending privilege. Is it any surprise they are almost all straight white males? Given social freedom, the privileged – who will not be called a slut, will be in the most popular groups, and can partake in ‘lad banter’ without fear of being called out on it.

      I think those who don’t fall into this category but call themselves ‘libertarians’ – bloggers ‘azizonomics’ and Jonathan Catalan spring to mind – aren’t really libertarian at all but actually liberal.

      • #17 by Roman P. on December 10, 2012 - 1:18 pm

        I wonder how many libertarians are *poor* white males. Being privileged but unsuccessful might explain heightened social aggression, but I might be just stereotyping here.

        Given that the meanings of those terms are different in the US and in Europe, I prefer not to stick the labels of ‘libertarian’ or ‘liberal’ onto people. I usually specify people’s views on political and economical freedom, though I used the term ‘libertarian’ in its American meaning in my comment to simplify things.

      • #18 by Unlearningecon on December 10, 2012 - 1:27 pm

        Yeah I think if you are privileged and unsuccessful, you have nowhere to look but yourself, so you blame the goddman government for holding you back.

        I think I do throw labels around too much. But I also find it’s useful just so people know who I’m talking about.

  6. #19 by Anarcho on December 10, 2012 - 9:50 am

    “In this way, many libertarians actually have a strong authoritarian bent.”

    Once you realise that they are not libertarians, but really propertarians and so in favour of a particular kind of particularly autocratic authority (that associated with wealth and property) then any apparent contradiction disappears…

    And the whole “tax is theft” theme is really nothing compared to that genuine libertarian slogan of “Property is Theft!” (see my new Proudhon anthology Property is Theft! for details)

    Iain
    An Anarchist FAQ

    • #20 by Unlearningecon on December 10, 2012 - 11:44 am

      As Adam Smith said, property primarily exists to protect the rich from the poor.

      Matt Bruenig has coined the term ‘income is theft’ to describe the idea that taxation is only one prong in a plethora of distributive institutions. See his humorous post on why income taxes are voluntary.

  7. #21 by Richard Lawson (@DocRichard) on December 10, 2012 - 11:42 am

    Slightly tangential to this, but I just had a look at the small state/low taxation notion, and found a rough correlation between high taxation states and better quality of life: http://greenerblog.blogspot.co.uk/2012/12/small-state-low-taxation-will-it-make.html

    Also between low taxation states and corruption. http://greenerblog.blogspot.co.uk/2012/12/following-on-from-this-post-about-low.html

    Which is what you’d expect (unless you’re a libertarian of course).

    • #22 by Unlearningecon on December 10, 2012 - 11:59 am

      Yes, libertarians have a difficult time denying that these countries are actually social democratic. Heritage construct a completely biased ‘economic freedom’ index to try and show they are libertarian, for example.

  8. #23 by Neil on December 12, 2012 - 8:43 am

    Presumably, people saying ‘we must obey the rule of law and not a bit more’ also drive AT the speed limit – and not a single mph lower, not a single mph higher – at all times, on all roads and in all conditions. Good luck with that!

    Let’s face it, it’s a shite argument; it’s a distress purchase; a desperate piece of rhetoric; the Laffer curve has been shown as the nonsense it is time and time again, and this is all they have left.

    • #24 by Unlearningecon on December 13, 2012 - 1:07 pm

      Yeah, absolutely. Who on earth obeys – or expects people to obey – the law to the letter. It’s ultimately about morality.

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