It’s the issue that consumed British politicians and newspapers at the end of April. What Britons do about it will determine whether their nation will be a beacon of liberty or a bureaucratic administrative state. It will decide whether David Cameron can remain prime minister.
No, I’m not talking about Brexit — the referendum on British membership of the European Union. The issue is tax avoidance and the use of offshore tax havens, which the release of the Panama Papers — the 11.5 million leaked documents listing more than 214,000 offshore companies — put front and center.
Initially, British newspapers concentrated on the revelations about Vladimir Putin and the get-rich schemes of his fellow autocrats. Once it became apparent that David Cameron’s father had used an offshore tax haven, and that the prime minister had inherited that wealth, he became fair game. The average British citizen now appears convinced that the prime minister at the very least avoided taxes, and may well have evaded them as well.
Too many people now see no difference between tax avoidance and tax evasion, even if the legal and accounting codes explicitly define that difference. In some ways, that is the fault of the chancellor of the Exchequer, George Osborne, and the prime minister himself.
Throughout last year, Osborne, with Cameron’s backing, waged a high-profile campaign against legal tax avoidance by companies like Starbucks and celebrities like comedian Jimmy Carr. Now they’re being hoisted by their own petard. So it should come as no surprise that the same media they whipped into a frenzy descended on Cameron when they smelled the blood of hypocrisy in the water.
Quite right, I say. Starbucks and other companies were right to refuse to pay more than they had to. Their actions were good for the companies themselves, as well as their shareholders, employees, and customers — in other words, British consumers and taxpayers. By keeping more of their earnings away from the government’s grasp, they were able to provide higher wages and benefits to their employees and more affordable products to the public. Amazon delivered packages quicker than the Royal Mail and provided a wider range of on-demand streaming TV than the state-owned BBC, without the threat of jail for not buying a TV license.
Tax avoidance has been affirmed as a moral and legal right time and again in common-law countries. American Supreme Court Justice Learned Hand, not the most libertarian of jurists by any means, put it best: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
The lesson here is that when free-market politicians play with statist fire, they are going to get burned, whether the issue at hand is taxation, regulation, trade, or any other.
Another important lesson is that you can’t put the genie back in the bottle. Now there are demands for all politicians to release their tax returns, which has led to problems for even the saintly Jeremy Corbyn, Marxist leader of the Labour opposition, who has found himself attacked for failing to declare thousands of pounds of income. There have even been calls for everyone’s tax returns to be made public, accessible by anyone.
As those familiar with British history know, the country is prone to attacks of widespread puritanism. In the 17th century, Britain’s elderly women were hunted down by the witch-finder general for the sin of living alone. Now, the country wants a rich-finder general to seek out people who keep too much of their own money.
This hysteria is not confined to the United Kingdom. In the United States, for example, the Foreign Account Tax Compliance Act — known by its tortured acronym, FATCA — gives the IRS extraordinary power to peer into the financial affairs of American expats. No one should be surprised by demands to extend this power to domestic bank accounts. If Operation Choke Point is anything to go by, banking regulators will be all too willing to work with the IRS to extend its power by “reinterpreting” existing regulations, without approval by Congress.
The bottom line is that financial privacy, at both the individual and corporate levels, needs to be a focus of free market intellectuals and politicians around the globe. We need to make a moral and intellectual case for financial privacy as strongly as we have made the case for individual privacy.
Above all, we should remember the advice of the great chief justice of the United States, John Marshall, who warned, “The power to tax is the power to destroy.” It is not a power to wield lightly, and certainly not one to wield to add a couple of points to your opinion poll rating. David Cameron is now finding out that truth the hard way.
Originally posted at the Foundation for Economic Education.