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Defenders of tax havens should put ethics before economics

Image: goodwp.com
Image: goodwp.com
Image: goodwp.com

The Paradise Papers: a triumph for investigative, data journalism, an embarrassment to the rich and famous benefactors of the Bermuda tax haven, and an outrage for the man on the street. Or, according to some, an insight into some perfectly-legal forces for good.

We’ve been here before, but it’s still interesting to see how the defenders of tax avoidance try to change our minds about another scandal that has exposed (or re-exposed?) the questionable activities of some of our society’s most prominent figures. It’s not the arguments about economic growth that are of special note; the greatest facet they demonstrate is an uncanny capacity to miss the point. It is a mystery as to whether the point-missing is deliberate, to provide handy avenues for ‘tax avoidance apologetics’, or the result of misreading the public mood.

Apologists for tax avoidance tend to adopt a straight set of arguments, often crammed into one place. Rich people, they argue, are paying plenty of taxes, thank you very much, especially now that tax rates are so low. “Whichever way you slice and dice it, there is no escaping the fact that the rich are paying more tax than ever in modern history, both as a share of the tax that we all pay, and in absolute terms,” argued the Institute for Economic Affairs’ Diego Zuluaga shortly after the Paradise Papers scandal broke.

What’s more, the users of tax havens have actually been contributing greatly to economic growth, all the more unimpeded by the absence of high rates of taxation. “Reinvestment in companies leads to expansion which creates more jobs. More money in the pockets of people leads to higher purchasing power and higher demand for goods and services which boosts the whole economy,” Nouse‘s Joe Silke reminds us in the most recent edition. Heaven forbid that we should consider raising taxes or taking any sort of strong line on tax avoidance; if anything, this is an excellent opportunity to simplify our tax code and keep capital mobile. In short: three cheers for Bermuda! What a great service its 0% rate of corporation tax does for us all.

Above all, it’s vital to the apologists to stress that the rich aren’t doing anything wrong. “Bear in mind that nothing illegal is going on here: we are talking about entirely legal alternative uses of capital,” writes Zuluaga. “Tax avoidance, more kindly referred to as simply tax planning, is completely legal,” echoes Silke. It’s tax evasion, they affirm, that is the illegal one. Tax avoidance? Nothing to see here, move along.

In summary, the apologists would have us believe that there is nothing wrong with tax havens; in fact, what would really be wrong would be putting any restraints on these brilliant factories of prosperity or letting the government spend any more money on its silly little projects.

Some have gone to great lengths to rebut every defence of tax avoidance. Above all, it’s the tax-avoidance-is-legal-unlike-evasion line that moves me to knock my head against a wall (more kindly referred to as simply resting one’s head against a firm surface with a degree of force). But there is more to this than fighting over the truth or falsehood of economic claim about tax havens. It may well be true that they promote economic growth and are all legal. But this is not the cause of public resentment. The economic cases for tax havens are in response to nonexistent anger.

People are not upset with tax havens because they want a higher Treasury income or because they think the law is being broken. Iceland’s PM didn’t get the boot because the Icelandic treasury wasn’t bringing in enough cash; David Cameron didn’t face calls to resign after the Panama Papers leak because his father’s company was such a good contributor to economic growth.

Here’s what apologists for tax havens either do not, or do not want to, understand: people are angry because we are reminded, once again, of the tremendous inequalities that exist in the globalised world: the capacity for a tiny group of people to exploit the loopholes of a system and dodge the obstacles the rest of us face. It’s not about economics – it’s about fairness.

Consider for a moment the tremendous political and economic power a small fraction of the population has over the rest of us, participating in secretive schemes to bend the rules to ensure that they pay as little as possible in tax. Even if it is “human nature” to avoid the taxman, by funneling off vast quantities of wealth to secretive zones of minimal regulation, the rich enjoy a luxury that others do not. Giant corporations can use tax havens to get an extra edge over their small rivals, driving them out of business with an advantage available only to a few.

Economic growth might come from capital mobility; but how can we maintain social mobility – it was once believed that anyone could rise from the bottom to the top if they worked hard enough – if those at the top have innumerable ways to preserve their socioeconomic superiority? Tax havens ensure that the unfairness of the state of affairs can only worsen.

Tax avoidance may be legal, but not everything that is legal is also ethical. Challenging a novice golfer to a few rounds on the course you’ve played a hundred times doesn’t break any rules, but it is hardly fair conduct. Yet by reminding us incessantly of its legality, apologists for tax avoidance seem not just to condone those who work hard to get around tax, but cheer them on. Should we be holding up as heroes those who find the sneakiest loopholes to minimise their tax burdens – those who are the most cunning at escaping the burdens that others face in full, usually for the entirety of their working lives? No: we should chastise them for their manipulation of the system.

Some of the users of tax havens might be keeping more of their money. This might mean that they invest more into the economy. But the “What is good for business is good for Britain” conclusion is not the be-all, end-all. Dogmatically clinging to it – insisting that, despite an elite’s social indiscretions, we all benefit in the long term – ignores the ethical considerations we ought to bear in mind.

Though tangled in economic ideas, the fairness of tax havens is really a question of ethics that apologists for tax avoidance don’t want to answer. Then, economics and ethics never seemed to mix easily.

This article was written in response to ‘Tax havens are not the devil and here’s why’ by Joseph Silke, published in print in Nouse on Tuesday 21 November 2017.