It should come as no surprise that many of the world’s most profitable companies, for example: Google; Apple; and Amazon, choose not to pay tax if they do not have to. Similarly, many of the wealthiest resident of the UK, for example: footballers; and media stars, also choose to avoid paying tax. As Eric Schmidt of Google suggests, this is merely what is to be expected from capitalism, or rather, we suggest, it is what is to be expected in a free-market.
Western civilisation, which creates the opportunity for these companies and individuals to accumulate their wealth, is what economists would call a public good: a good where exclusion is impossible. That is, a good from which all benefit, even if they do not contribute towards its maintenance. Straightforward theory shows that the market can not provide public goods, as it in the interests of all to “free ride”. To overcome this problem state intervention is required. However, to provide public goods the state requires revenue, i.e. tax.
Ironically, those who benefit the most financially from western affluence also find it easiest to find ways to “free ride” by avoiding paying for its upkeep. As government receipts fall, the need for austerity increases, this makes recovery and less likely and growth weaker. Tax avoidance hurts us all, even the “free riders”.
By undermining the very civilisations which bring them their wealth, tax avoiders are ultimately undermining their own profitability. However, they face a tragedy of the commons – it is in all their collective interests to support civilisation, but in no one company’s interest. Indeed, those companies with ethics such that they do not seek to avoid tax, ultimately will lose out in the market-place. We must look to the state to resolve this paradox.
The government’s top priority should be the closing of tax loopholes. Tax is the price of a civilised society; the ease with which it is avoided ultimately threatens our national and social way of life.