The logic of tax justice

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A sometime commentator on this site called Richard G Brown has written about what he considers to be the "silliness intrinsic" in tax justice. I think it only fair to say that he was goaded into doing so by Duncan Wigan, who is a colleague at Sussex University where I am a visiting fellow.

Richard makes three accusations against what I write and what TJN writes. The first is that:

The primary fallacy seems to be the tendency to start from the perspective that your money is the state's - and that you should be allowed to keep what is left after the state has taken what it wants.

The second refers to the claim on the Tax Justice Network website that "tax havens cause poverty" and is that:

tax justice shows the "interesting" level of economic literacy prevalent in this field. There seems to be a belief that poverty is "caused" and that, naturally, it is somebody's fault.

The third is that:

Anybody who disagrees with the tax justice crowd is "greedy".

As someone who has read these comments said to me, they are somewhat bizarre, but let me deal with them:

Your money is the state's

I do not know one person involved with tax justice who has said this, or thinks it. The notion is so extraordinary that I am tempted to simply dismiss such thinking. But I believe Richard G Brown to be serious. So let's deal with it.

My poisition (I'm not going to speak for others) is that tax is the price we pay for living in communities. We don't know any other way of living, and as a matter of fact we are mutually co-dependent. To regulate this co-dependence humans have always accepted a need for government of some sort, legitimised in various ways. We now desire that legitimacy to come from consent expressed democratically.

I believe that governments elected in this way have a right to collect tax. More than that, they have a duty to do so to ensure that communal goals (and we'll disagree, fairly, on what they are) can be fulfilled. In the process of doing so it has five objectives. These are to:

  • Provide public funds;
  • Redistribute income to reduce poverty and inequality;
  • 'Reprice' goods and services to ensure that all social costs of production and consumption are reflected in the market price;
  • Strengthen and protect channels of political representation;
  • Provide a tool for the management of an economy, usually in combination with government borrowing.

All these goals are, in my opinion, desirable. They create stable communities. That has to be of benefit. This system also corrects the very obvious failing s of the market system. That system could not ever provide a socially optimal outcome in any society in reality because so many of the pre-conditions of it doing so do not exist. Those that do not exist include:

  • Perfect knowledge of the future;
  • Perfect knowledge of all products and services available in the market now, and their prices;
  • The existence of markets in which no company has any power to influence price;
  • Equal access to resources in society.

I could add many more, all of which are required to make markets produce successful outcomes and the absence of any one of which will result in an imperfect result. The degree of imperfection cannot be predicted, but will tend towards monopoly exploitation. This is why the State must intervene to protect those whom the market would otherwise both fail and exploit.

But that right of intervention does not mean that the State has a prior claim on a person's cash. But we do say it has a legitimate claim on part of it, and we add that it is the duty of the citizen, wherever they might be, to respond as required by law to that claim and to fulfil the demand made of them. And no more.

This is far removed from Richard Brown's assertion of our belief.

Tax justice is poor economic thinking

I am baffled by this. I don't claim to be much of an economist, but I have a degree in the subject. Many of those I work with are somewhat better qualified in it. But I struggle to identify our poverty of thinking, and Richard fails to highlight it.

If we consider this issue within the model of market economics (and I think it fair to assume Richard does ) then his own position is bereft of economic logic. The reason is that, as I have noted above, market theory suggests that an economy can produce an optimal outcome for all who live in it in one particular set of circumstances which is far removed from any reality yet known to humankind. Any deviation from the conditions required to achieve that goal will result in sub-optimal behaviour.

What we argue is that tax havens facilitate that sub-optimal behaviour because for markets to work it is necessary to have perfect information. Tax havens (which we say cause poverty) contravene a required pre-condition for market theory to work optimally because they ensure that secrecy prevails and as such imperfect outcomes are bound to result. Our argument is that this situation is exploited by those who can afford to avail themselves of the services of those who work in these places to exploit those who cannot do so. A perfect example is the use of them for corruption in Kenya. This failure does cause poverty as a result. This is logical economic thinking, and not as Richard Brown suggests. And someone is to blame: action could be taken to close tax havens. Every aspect of Richard Brown's logic appears flawed.

Anyone who disagrees is greedy

There are two responses to this. The first is that the whole basis of mainstream economic thinking is that greed is both acceptable and desirable. This is what the maximisation of self interest that it promotes means, at least to many who seem to simplistically buy into this economic vision. To raise the point that greed exists in the economic system and is a motive for not paying tax is in fact to simply refer to one of the fundamental tenets of currently accepted economic theory.

But, more particularly, the comment I made which Richard Brown referred to was appropriate. It is wholly untrue to say that I had not logically argued my case from first principles before referring to greed. I had. And I was responding to this statement which was made by a commentator:

I'm not greedy I just don't see why the money my father earns throughout his lifetime, for the benefit of his family, should be subject to yet another tax when it is passed on to them.

That's irrational, and self interested. It's also wrong. As my piece showed, the sum in question had never been taxed. In that sense I felt it entirely justified to rationally say the comment indicative of greed. That was not an ad hominem argument. Ad hominem argument was the sort heard on Hecklers when without any justification from what I said I was accused of xenophobia and envy. Those making those comments have been widely remarked upon for having put forward illogical comment. But I did not present such a case.

So, in conclusion Richard Brown has to be do somewhat better to win his claim that there's intrinsic silliness in tax justice, because that's far from being true.