Thursday, March 2, 2017

Tax Avoidance is Moral

The recent leak of the Panama Papers—which consist of confidential banking documents that report names of thousands of offshore corporations and their shareholders—created a media storm around the world. Many of these corporations are shells that serve as “tax havens:” they allow corporations and individuals to avoid paying taxes in their home jurisdictions. Although most of the money invested in these shell companies is not criminally ‘laundered’ but obtained legally, media commentators have been lamenting that tax avoiders are immoral because they are not paying “their fair share” of taxes. They accuse those investing in offshore shell companies of “ripping off the middle class” by shifting the tax burden to it.
Why is there such a moral indignation—and why should we defend tax avoiders instead? To answer these questions, we must first ask: Why do these lamenters think paying the maximum amount of taxes is a moral duty?

In a recent column in the Financial Post, Kevin Libin points out that taxes are merely legalized theft by the government. If our neighbor stole from us, we would be calling the police, outraged at the injustice and demanding to get our property back. However, when the government takes our property by force—through taxation—and gives it to our neighbor, or to an artist who can’t find buyers for his works, or to a company unable to develop competitive products, or uses it to fund any other of its myriad “re-distribution” schemes, we accept that as just and moral.
Those who think that government collecting taxes from those who are productive to give them to those who are not is just, do so because they have accepted the morality of altruism and egalitarianism and believe that statism is the ideal social system.
According to altruism, we should sacrifice our interests to other people, particularly to those who are needier than us; therefore, taxation is moral. According to egalitarianism, reducing or eliminating inequalities of income and wealth is the moral ideal; therefore, taxation is moral. And according to statism, the government knows what’s best for its citizens; therefore, it has the right to violate their individual rights to liberty and property, take their money, and spend it whichever way it deems best.
According to these views, “a fair share of taxes” is as much as one can afford to pay—as determined by the government, which considers it “fair” to tax those with higher incomes and wealth relatively more.
However, if we recognize that altruism, egalitarianism, and statism are destructive doctrines that contribute to human misery and poverty (as extreme examples, think of the ‘social experiments’ of Mao Tse-tung’s China and today’s Cuba) and if we accept human flourishing as the moral standard instead, we would reject taxation as immoral and avoiding taxes as the moral imperative.
There is only one social requirement of human flourishing: the absence of coercion, including taxation. (It is no wonder the 19th century America—with no or minimal taxes—witnessed so much invention and wealth creation). Humans survive and flourish by thinking: using reason, and by acting on their rational conclusions. If government tells them to obey its orders instead and confiscates their property, the result of their productive efforts, flourishing and prosperity are not possible.
By taxing the wealth creators, governments everywhere incentivize them to shelter their property against heavy taxation instead of investing it in productive purposes and further wealth creation, which would lead to economic flourishing for everyone participating in productive activity: shareholders, employees, suppliers, and other businesses (with which shareholders, employees and suppliers would trade).
By taxing the producers, governments prevent the free markets from working to everyone’s benefit (even to those who for reasons of disability or other misfortune are not productive, as abundant wealth creation and the absence of government hand-outs would lead to flourishing private charity and insurance business). Governments’ own attempts to make investment decisions (such as in infrastructure or to “diversify the economy”) or to reduce poverty by “re-distributing” money from the productive to the non-productive are no match to the free markets in  enhancing human flourishing. No matter how well- intentioned the politicians and bureaucrats are, by curtailing the freedom of individuals to make their own choices, they diminish human flourishing.
Avoiding taxes is moral, and using your money to promote your self-interest through production and consumption is a moral imperative—if long-term profitability and happiness are your goals.

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