The immorality of high taxes

Tuesday September 27, 2011

Taxes are coercive and the money is often wasted or spent on pressure groups. There’s nothing moral about them, says Eamonn Butler

No doubt the debate on the 50p tax will continue to rage through next week’s Conservative conference. The former Chancellor Nigel Lawson has condemned it. The Institute of Directors says it is putting off investors and hitting confidence. The Institute for Fiscal Studies says it might actually lose the Treasury money. And yet, the refrain goes, in these straitened times, “the rich must pay their fair share”.

They already do. This year, says HMRC, the top one per cent of earners will pay over a quarter – 25.7% – of all income tax revenues. And, thanks to Gordon Brown, they pay more stamp duty and council tax on their big houses, higher taxes on their big cars and higher tax on their plane tickets when they zip off to the Caribbean to top up their tans.

Quite a fair share.

Warren Buffett and Sir Stuart Rose say they should pay more taxes. Fine, guys, go ahead: but don’t force others to. That’s the trouble with taxes – they are taken by force. Most people would be happy to pay for essential services. But when the government is taxing 40% of the national income (Tax Freedom Day now comes in June), nobody thinks all that spending is ‘essential’. Indeed, more of us see it only as exploitation, forcing us to pay for the values of a political class.

And that’s hardly ‘fair’. It deeply distresses many people that they are forced to pay for, and have their name associated with, foreign wars and other things that they believe deeply immoral. It is not even as if the politicians and officials who do this somehow reflect the values of the general public. No, they have values of their own. To stay in power they need to give favours – subsidies, tax reliefs, all the rest – to their own supporters and to those highly-motivated vested interest groups that dominate the public debate. Officials too might aim to do good for the public, but are even keener to protect their own jobs and budgets. It’s human nature, but it is hardly a ‘fair’ way of spending money that is coerced out of people.

High taxes undermine personal responsibility too. People reckon we pay handsomely for our public services. So it is the teacher’s job to ensure their kids are well behaved, the welfare state’s job to look after people in need, the role of the police and social services to intervene when the neighbours batter their kids. Personal obligation is shuffled off to the state.

We see this in philanthropy too. The US government takes 27% of the national income, while the UK takes 40%. That leaves Americans much more money in their pockets and is one reason why they donate two-and-a-half times more to philanthropic causes then we do. And you can be sure that this money is much better spent than it would be by a faceless bureaucracy.

There’s little that is ‘fair’ or moral about taxes of any size. But high taxes take even more coercion to collect (witness the 2,200 ‘anti-avoidance’ troops that HMRC is recruiting). And when taxes are so high that much of that coerced-out-of-us money is wasted, or so very high that we revolt and revenues start to tumble, they instead become deeply immoral. I sometimes wonder how our leaders sleep soundly in their beds.

Dr Eamonn Butler is director of the Adam Smith Institute