Tax avoidance: Not illegal, just harmful and deviant?

21 April 2016

Rowland Atkinson - Associate Fellow, SPERI and Research Chair in Inclusive Society, Department of Urban Studies and Planning, University of Sheffield

The furore over tax avoidance, both by our national and international elites, reveals new social fault lines while highlighting a crisis of legitimacy to calls for togetherness and common purpose

The word plutocracy combines two elements to its meaning – that of wealth and power. To live in a plutocracy, many argue, is to see the warping of the political process by those with the resources to do so – representation for all is eroded by a seizure of control by the few.

The impact of such control is evident in financial support for political campaigns, as well as the massive infrastructure of lobbyists, the subtle closing-down of political debate and the voting patterns of ‘bought’ politicians. Yet in many ways simply understanding control by the wealthy as the capture of political institutions and actors by the rich is a rather limited reading of what we might mean by plutocracy. A broader understanding of a plutocratic society is one where our social and economic world is run to, and for, those with increasing levels of personal wealth. While these processes are often difficult to substantiate they amount to a corruption on a grand scale which pervades much of daily social and economic life, particularly given the scale exposed by the recent leak of the Panama Papers.

A society organised in this way is one in which material wealth and privilege is identified as the mark of aspiration and success, but also has the right to be passed-on to those who are members of this class. For those in such a position it is deemed natural, right and socially useful to retain and expand such privileges.

Following the revelations of huge and systematic tax avoidance by the global affluent have arisen defences by those who argue that offshore investment is nothing to concern ourselves with – this response has been rapid and aggressive, a grand denial of wrongdoing and an assertion of the freedoms of individuals to take rational decisions in the search to bolster their private wealth. The indignation of those charged with avoiding their tax dues has been impressive to watch, a form of denial of harm or wrongdoing that criminologists will recognise as strategies of avoiding the charge of illegality. In the world of the elites in this, more extensive, notion of a plutocracy, in which making money is the primary function of individuals, moving money offshore is seen as legal and rational. Indeed, it is seen as the logical choice of those with the resources to pursue tax efficient vehicles which are supplied by a cadre of operators who help those with money to maintain anonymous offshore accounts.

There are at least two problems with this position and reasons to believe that real and effective pressure will come to bear on the Amazons, Googles and Camerons of this world. First, those institutions and individuals using apparently legal forms of investment are increasingly being challenged as normative readings of what is morally problematic and consequential on their choices change – increasing numbers of people think it is reprehensible to avoid tax and more are now aware of the scale of these issues through leaks like the Panama Papers. Second, a key problem for those seeking to defend offshore investment is the impression we now have of the stellar wealth of our elites (such as stories of £200,000 ‘gifts’). The scale of such wealth is problematic because we also know material inequality, particularly that measured by wealth, is increasing. In addition many people have been deeply touched by forms of social and economic pain following cuts to the public realm that the current and former coalition government espoused were necessary for us as a community. Clearly this was rather a partial reading of the term community, or at least one predicated on an idea of noblesse oblige and patrician responsibility that operated in tandem with a hotline to a Panama broker.

Another key problem for our elites following the Panama Papers revelations relates to the increasingly clear impression we have of a class of people who are defined by their finances and whose allegiances are built around these interests. This is a class or group for whom identity is increasingly structured by however, and wherever, fast money can be made and enlarged, rather than through any sense of being part of a national or local community. What is revealed is a newfound robber-baron logic of plunder and secede that sees the wealthy secreting their money where it can grow and avoiding their national tax regime. In a political context in which an entire political project has been built upon the idea that there are limited resources to run essential public services (and new resources need to be found) the entwined sense of wealth and avoidance feels like nothing less than grand betrayal.

Because of these problems, of inequality and a rather profound breakdown in social cohesion, there is now a deep legitimacy crisis at work. This will not be explained away by an appeal to a legal/criminal distinction or the idea that the wealthy are like the majority of us. Instead it is much more likely that judgment will be formed on the basis of a belief by many that the structures of our economy work to privilege those who seek to avoid, work around and undermine forms of collective purpose and provision. Linked to this is the growing recognition that what we have seen thus far is only a glimpse of the trillion dollar economy of offshore finance placed by individuals looking to make more money for themselves than they can within their own tax jurisdictions.

So the key question ultimately generated by this mess is – if we are not in fact in this together, whose side are we on?

Where politicians and corporations apply the ‘not illegal’ defence then counter-arguments are only likely to be bolstered amidst the sense of social outrage. Criminologists have long observed how socially harmful practices (in this case tax avoidance) can move to become recognised as a form of social deviance that generates shame among those engaging in such behaviour (slavery, smoking, domestic violence can be given as examples of such transitions). Another possibility seems even more likely – that we are seeing the prelude of more concerted attempts at legal prohibition that are founded on this moral outrage as well as plausible economic evidence regarding the damage of avoidance. Here the difference between evasion and avoidance may yet be the winning or losing of the next election, rather than the well-worn anecdote about it being the thickness of a prison wall.

It seems a distinct possibility that much tax avoidance will become defined as tax evasion because the majority population feels that it is morally right to frame such behaviour in this way. Moves to prohibit anonymous ownership of offshore investments seem to be a precursor to this. A synoptic world, in which the many closely watch the few, is fuelled by social media and instant leaks of millions of documents that also drive moves in this direction. Strange as it may seem, the weakness of a plutocracy today is that it emerges into conditions of counter-surveillance that may challenge its ascendency. In a world run to the rhythms of money and little else the legitimacy of plans to raze public housing, reform public health systems, cut essential social care while protecting those with profound wealth seem at worst extraordinarily callous, at best plain wrong.

The case for alternatives to austerity and a deeper form of collective endeavour is made all the stronger by the Panama Papers and, no doubt, other revelations to come about the secret life of our elites.

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