On tax evasion
Giovanni Birindelli (Italian version here)
The usual “moral” attack against tax evasion was carried out today by Italy’s largest newspaper (see article by Sergio Rizzo on corriere.it, 20 Aug 2010). Obviously, the moral dimension of tax evasion is an issue regarding at least every Western 'democracy' whose tax system is based on progressive taxation. It is interesting to notice that those who issue such loud and definitive 'moral' verdicts against tax evaders never question the morality of progressive and unlimited tax systems, that is of tax systems based on progressive taxation and on the lack of limits of principle to what these taxes (which imply coercion of some by others) can finance. This is especially surprising in the case of Mr. Rizzo, whose famous book La Casta describes with unequalled detail, completeness and efficacy, the extent of the use of taxpayer money for the promotion of particular interests in the case of Italy. From now and then, in Italy, a few journalists and politicians ask themselves whether a tax reduction is expedient for the attainment of particular results, for example economic ones. However, the question whether a progressive and unlimited tax system is moral is hardly ever raised, not even by the victims of this tax system and/or those of these 'moral' attacks. An answer to this question is however necessary in order to determine whether someone who evades taxes is doing something immoral. Friedrich von Hayek wrote that «Redistribution by progressive taxation has come to be almost universally accepted as just. Yet it would be disingenuous to avoid discussing this issue. Moreover, to do so would mean to ignore what seems to me not only the chief source of irresponsibility of democratic action but the crucial issue on which the whole character of future society will depend. Though it may require considerable effort to free one’s self of what has become a dogmatic creed in this matter, it should become evident, once the issue has been clearly stated, that it is here that, more than elsewhere, policy has moved towards arbitrariness». Some of the main reasons why, from a liberal point of view, progressive taxation is unjust, are that it consists in the use of political power for the promotion of particular interests and that it arbitrarily discriminates against particular individuals or categories of individuals. In other words, progressive taxation is illegitimate because it violates the law and the principle of equality before the law. Many people would object to this statement. In what follows I would like to discuss very superficially some of the most common arguments which these people normally recur to in order to sustain such an objection. (I will not discuss here the reasons why progressive taxation is necessarily against the long term interests even of those in favour of whom it redistributes, nor those why it destroys true solidarity - i.e. the individual and voluntary one - and it is anti-social). *** In the first place, many people in Italy would argue that progressive taxation does not violate the principle of equality before the law because progressive taxation is imposed by the same constitution which is supposed to protect that principle. Such objection has, of course, only the effect of showing how a type of constitution such as the Italian one (i.e. a type of constitution not limiting itself to defining the institutions of the state and to separating their powers) can be used, by a large and powerful enough majority, as an instrument for the promotion of particular interests, for example those of the categories of individuals whose vote the authority needs in order to be (re-)elected. When the Italian constitutional court ruled that the so-called “Lodo Alfano” (a measure passed by the parliamentary majority controlled by the current prime minister in order to shield the “top four jobs in the state” by criminal prosecution, i.e. to protect the prime minister himself from his trials) was unconstitutional because it violated the principle of equality before the law (article 3), it stated that, in order to be passed, the "Lodo Alfano" would have to be approved as a “constitutional law”. In other words, as in the case of progressive taxation, violating the principle of equality before the law is OK as long as it is done by the same constitution that should protect it. *** Other people would claim, in Italy and elsewhere, that progressive taxation is not against the principle of equality before the law because all individuals earning above n are taxed z% (in the same way as all individuals earning below n would be taxed y%, with z higher than y). Such an objection assumes a very particular idea of equality before the law, namely the one which consists in the authority a) fixing an arbitrary parameter (say the income earned); b) arbitrarily forming, on the grounds of this parameter, different categories of individuals; and c) treating different individuals differently but uniformly within each one of these categories. It is very curious that usually the same people who make this objection claim loudly and proudly to be against the “Lodo Alfano”, or the discrimination against homosexuals or against the ethnic minorities. In fact, these forms of discrimination are based on the same concept of equality before the law as progressive taxation: in all these cases the authority fixed an arbitrary parameter (“level” of the job; sexual orientation; ethnic origin), arbitrary formed categories on the grounds of this parameter (“high” and “low” jobs; homosexuals and straight; Jew and Aryan) and finally treated individuals differently but uniformly within each of these categories. This is not equality before the law: this is legal inequality. As Hayek wonderfully explains, there is a different idea of equality before the law (the original one) which consists in equal treatment of all individuals before the law intended, not as command by authority (as it is today), but in the sense of general principle independent of authority. This original idea of equality before the law, which does not allow the political power to classify individuals into different categories and to treat them differently according to the different categories in which it has classified them, presupposes a concept of law not only different, but opposite to the one we have today: the law intended as a limit to arbitrary power, not as its instrument. In this original sense, the law is not the end-dependent rule (thesis) of an arbitrary social order (taxis) such as an organization where all members have a collective purpose (in other words, it is not a command by authority); but rather it is the end-independent rule (nomos) of a spontaneous order (cosmos) which, like an organization, is the product of human action but, unlike an organization or any other kind of arbitrary social order, it is not the result of human (and therefore also authority’s) design and therefore it is the law of a free society where individuals do not have, nor can have, nor are presumed or forced to have, a collective purpose. This original idea of the law implies that it exists before legislation and independently of authority. Nobody has the power to decide that stealing is legitimate (or just): in a free society, the authority has only the power to defend (and in case to discover, if it has not been done already) the abstract principle (the law) according to which stealing is unjust. Such principle has never been decided: it is the result of a spontaneous and dispersed process of selection of the strongest uses and conventions (of the uses and conventions that were spontaneously selected as they contributed more than others to enhance the chances of survival of society), not of the strongest individuals and groups, e.g. because more numerous. In a free society, the legislator is an archaeologist, not the owner of a building firm; he is law's slave, not its master. Because of this, the law of a free society (nomos) is shielded not only by the will, but also by the opinion, for example that of the majority or even of the totality of individuals. If the majority or even the totality of citizens believed that raping (or raping a particular category of persons) is legitimate, this would not make it so. However, even though the law of a free society itself is shielded by opinion, admittedly its discovery and its defense may not be: in fact they are often dependent on the opinion of the legislator-archaeologist. This one, however, unlike the legislator-owner-of-building-firm, does not have the power to mix his will (or that of his electors) with his opinion; nor he can afford the luxury, unlike us the citizens, to give his opinion regarding the existence of a law without having to back it up with an in-depth study and an extensive research that are capable of proving beyon any reasonable doubt the valididity of his discovery or of his defense, and therefore also its abstract coherence with the rest of the generals and abstract rules of just individual conduct already recognized as valid in a country. *** Other people still would object that progressive taxation does not violate the principle of equality before the law (actually they would claim that it actively contributes to defend that principle) because, by transferring financial resources from those who 'have more' to those who 'have less', it tends to equalize the material position of different individuals. These people confuse two things which are not only different, but mutually exclusive: namely, equality before the law with equality of material condition obtained (or approached) by authority via redistribution. Those claiming that it is 'just' to take by force from those who 'have more' in order to give to those who 'have less' would never be ready to apply the same abstract and general principle to situations different from those that involve money, say hair. They claim, usually, that one thing is hair, and an entirely different thing is money. And yet both money (if legitimately owned, e.g. if not stolen) and hair belong to the legitimate owner: when these persons claim that the first can be taken by the state and redistributed, while the second cannot, they show that they have an arbitrarily selective idea of property, not a moral one. In addition, they show that they have an idea of property according to which, which form of property should be more important than another, for any individual, it is to be decided by the state. If, in his own scale of priority, for A money is more important than it is for B, and therefore A is ready to sacrifice more for it than B (who has a different scale of priorities, for example because he has different tastes and qualities), progressive taxation discriminates against A. Progressive taxation therefore consists in the authority deciding the particular tastes and qualities that individuals must have. Again, it is curious to notice that the same people who normally defend progressive taxation on the grounds that it is 'just' to take from those who 'have more' in order to redistribute in favour of those who 'have less', normally are the first ones to defend, in other circumstances, the importance of individuality as an element of well-being (to use the title of a famous chapter of J. S. Mill’s On Liberty). *** The last argument in favour of progressive taxation that I will superficially discuss is that of those people claiming that progressive taxation is 'just' on the grounds that it allows the government to help those individuals who are in a situation of severe privation. Avoiding, for now, to emphasize the fact that this line of argument deals with redistribution in favour of those who are in an extreme situation of severe privation, not of those who 'have less', it is necessary to point out that those who use it again confuse two things which are not only different from each other, but opposite to each other. In particular, they make a confusion between passions and emotions, on the one hand, and justice on the other. Justice is independent of emotions and passions, otherwise it is not justice: «If we examine all the questions, that come before any tribunal of justice, we shall find, that, considering each case apart, it would as often be an instance of humanity to decide contrary to the laws of justice as conformable to them. Judges take from a poor man to give to a rich; they bestow on the dissolute the labour of the industrious; and put into the hands of the vicious the means of harming both themselves and others. The whole scheme, however, of law and justice is advantageous to the society and to every individual» (David Hume) From a liberal perspective, it can be argued, as Hayek did, that, in extreme situations of severe privation, and provided that certain conditions are met, it is admissible to exceptionally violate the law and the principle of equality before the law on the grounds of humanitarian reasons: that is, to help those (and only those) who do not manage to autonomously satisfy their basic needs and at the same time do not receive voluntary help by others (therefore respecting the law and the principle of equality before the law in all other instances: which obviously excludes recurring to progressive taxation as an ordinary system). However, one thing is to exceptionally and explicitly violate the law and the principle of equality before the law for such humanitarian reasons only (for example only to the extent necessary to cope with such situations of extreme privation which the ordinary, non-discriminatory tax system is unable to cope with), and quite another thing is to give these humanitarian reasons (and therefore the emotions and the passions that they imply) the title and status of 'laws'; to make the violation of the law and of the principle of equality before the law systematic, ordinary and legal; and to violate the law and the principle of equality before the law, not because of these prevailing and extreme humanitarian reasons, but in order to reach a "more equal redistribution of resources". If redistribution of resources is limited to cases of severe privation, recourse to arbitrary coercion by the state still tends to be reduced as much as possible; beyond this, it necessarily tends to expand as much as possible. *** In conclusion, the common attacks to tax evaders take for granted, without questioning it, the morality of progressive and unlimited tax systems. From a liberal point of view, a tax system is moral only if a) what it finances lies within the boundaries of the minimal state, which, in Nozick’s words, is the most extensive state that can be morally justified and b) it does not systematically discriminate against particular minorities. In other words, a tax system is moral only if it respects the law in the original sense of nomos (and therefore also legitimate property rights) and the relative concept of equality before the law. A tax system that, provided certain conditions are met, by means of arbitrary coercion exceptionally violates the law and/or the principle of equality before the law in order to offer help to those who find themselves in extreme situations of severe privation (and in these situations only), can still somehow incorrectly be called 'moral' if such violations are limited to these situations, are unavoidable, are explicitly recognized as such (as violations of the law and of the principle of equality before the law) and therefore tend to be reduced as much as possible. Beyond this, a tax system is purely immoral, and so is the institutional framework that allows it. From a liberal perspective, therefore, a tax system such as the one currently in force in Italy is immoral. In Bastiat’s words, it is a form of plunder (with the non negligible difference that the plunderer, at least, usually does not have the arrogance of claiming that what he is doing is something 'just' and 'social'). Given this, liberals cannot easily call 'immoral' those who hide part of their legitimate private property before the plunderer arrives; and those among them who, in order to avoid trouble, pay all the taxes that the totalitarian state requires, sometimes have a feeling which perhaps is similar to that of a non-fascist businessman who, during fascism, in order to avoid trouble, took the 'fascism card', i.e. subscribed to fascism; or to that of a victim of the mafia who, in today’s Sicily, in order to avoid trouble, pays the 'pizzo': this is a latent feeling of shame. Non-liberals of course can label tax evaders as 'immoral', but first they have to be able to coherently defend the idea of law and of equality before the law on which progressive taxation is based and to accept as just the consequences of their general application. The opposite, however, invariably happens: in most other instances, often unintentionally, they proudly uphold the idea of law and of equality before the law that are violated by the same progressive taxation, and therefore by the same tax systems, that they defend. Taking for granted an idea of law that they are invariably unable to defend when it is applied universally and it is subjected to careful examination, those who move the objections superficially discussed here usually tend to agree on the fact that "first you pay the (progressive) taxes, then you can talk". However, for those who still defend the original idea of the law, that is for those who still defend the law of a free society, this phrase is similar to the following one: "first you allow those who violate your legitimate rights to do so (e.g., the thief to steal from you, or the raper to rape you), then you can talk". If, as a liberal, I was not in favour of a gradualistic approach, to such a violent and obtuse phrase as "first you pay the (progressive) taxes, then you can talk", I would be inclined to answer: "first, you, the state, reduce yourself to the minimum, i.e. go back inside the boudaries of legitimacy, then tax citizens in the least discriminatory way".
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