On tax avoidance

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When future generations look back at our present short epoch of world history which began with the elections of the Thatcher and Reagan governments (“neoliberalism”), no social wrong will seem more typical of this age than the shared refusal of the rich to pay their share in taxes.

Tax avoidance is the glue which binds together the retired sportsman, the bank client, and the Conservative donor.

Years ago, I was a welfare officer in a southern English university. The college had generous policies to subsidise those students who survived on their parents’ very small incomes. Needless to say, in a college where around half of the students came from working-class families, no-one from this background was ever eligible. The income limits for a student’s family were set so low – circa £5,000 per year – than only the children of Dukes, businessmen and landowners were ever eligible. They at least had the good fortune of employing accountants, skilled in converting family businesses with real turn-overs in the tens of millions into paper debtors overwhelmed by fictitious losses.

The ubiquity of tax avoidance helps to explain why it was that the MPs cheated their taxes so exuberantly. Among those who spend their company’s money bribing MPs to vote against the regulation of the fracking industry or the press, it is entirely normal to declare as tax expenses the hire of chauffeurs, the purchase of light bulbs and toilet rolls, the paying-off of second, third or fourth mortgages. Every theft of the MPs was justified in the protagonist’s mind by the thought, “if I don’t do this, there must be at least thousands of people richer than me who get away with worse.”

For most of tax history, it was the rich who had to pay direct taxes on employment, while the income of the poor was assumed to be so modest that the majority of people could be taxed only on the food they ate. Under a system of pervasive full-time employment, it become possible to tax the income of the working-class majority. From that point onwards there has been seemingly no need to tax the rich at all – some money is generated without them, perfectly enough to keep a medium-sized state ticking over, even if the rich contribute almost nothing to public expenditure. And so we have our present tax system, where the large majority of people, because they work, are required to pay, while a small number of the self-employed in the middle are subject to relative tax scrutiny, and the taxes of the rich become – in effect – entirely voluntary.

In the mindset of the very rich man or woman, every other person’s tax avoidance is worse than their own. This is how it is possible to think of tax avoidance on a scale from “vanilla” to what – tax “kink”, Christian Grey style?

The millionaire who deducts from his taxes an annual salary to represent their housewife partner’s imaginary work as his “secretary” (another trick widely copied by the MPs) tells himself that at least he is better than the multi-millionaire who has washed his income through a dozen off-the-peg companies. And the multi-millionaire, for her part, might in a generous mood declare 1 or 2% of her income so that it looks like she is paying “something”. She tells herself that she is one of the good people, at least she declares a UK residence, unlike the non-dom super rich who can get away with paying nothing.

“Everyone avoids tax”: among the class of people who are indeed rich enough so that neither they nor their children will ever have to work – yes, tax avoidance is pervasive. But for the vast majority who work, we have no choice but to pay taxes.

You won’t know the effects of tax avoidance unless you have been hungry. You won’t know the effects of tax avoidance unless you have been threatened with eviction. You won’t know the effects of tax avoidance unless you have lost your job and then been refused benefits.

Tax avoidance is not something irresistible, like a patch of bad weather, but the product of a match between the choices of tens of thousands of people to benefit at the expense of the majority, and the unwillingness of our political class to confront a problem from whose negative effects they personally are entirely sheltered. (And in the shadow of a problem of this scale, it is entirely inadequate to launch forward in a temporary sally of bravery declaring a tax avoider “dodgy” before retreating the next day without setting forward anything to bring tax avoidance to a end).

Tax avoidance is not a victimless crime but a deliberate policy of successive governments which have chosen to use the incomes of the poor to subsidise those of the rich.

Why is Europe shrinking the Greek economy? Because of a tax deficit which has arisen largely because over several decades successive governments – for an even longer period than their counterparts in Washington and London – chose not to enforce the taxation of the Greek rich.

Why can we not afford proper pensions, free education or a publicly-owned NHS? It is nothing to do with an ageing population and all to do with the refusal of the rich to declare their full income for tax purposes. At the moment, they opt out of the system, every public expenditure must fall to make up for their missing contribution.

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