In yet another reminder from the Why-We-Don’t-Want-to-be-More-like-Europe department, a furor has arisen in England over tax compliance. Celebrities who have minimized their taxes using perfectly legal means are being subjected to public scorn, and Secretary of the Exchequer David Gauke has berated ordinary citizens who exchange cash for small services as “morally repugnant.”
Importantly, there is no law in England against customers paying cash for services. But because some businesses are not properly submitting the VAT to the revenue authority, the government is “educating” (read: coercing) the English public into becoming part of its revenue maximization campaign.
In this case, it’s the British government flexing its muscles against the ordinary financial lives of citizens instead of getting spending levels down to within revenue levels.
But governments all over the world are in a lather over the “tax gap”—revenue to which they feel entitled but fail to collect for various reasons. And the U.S. is no exception.
No matter what kind of tax system a country has, there is always going to be an underground economy. The question is how intrusive and oppressive we allow government to become in order to collect these additional revenues. If government is allowed to become oppressive in its pursuit of revenue, at some point we’ve lost our liberty and are now subjects of a surveillance state.
A subtle but important aspect of our tax code is voluntary compliance. That doesn’t mean that you don’t have to pay your taxes, but it does mean that you are free to arrange your financial affairs in order to minimize taxes and take full advantage of tax benefits. Our morality and patriotism is not determined by how much we pay in taxes, and we must not allow ourselves to be browbeaten by greedy government into such a servile posture.
If we fall for the government’s demand for the maximum possible tax revenue from taxpayers, our financial privacy will be tossed in the waste bin along with our freedom. Government attempts to address the tax gap will inevitably involve more data demands and transaction reporting requirements, more exchange of information between governments, more intrusive audits by multiple government agencies, and even the government computing your tax liability and simply sending you the bill.
The best way to address these concerns is through tax reform according to the principles IPI has been espousing for years: Simplicity, transparency, and neutrality. Tax reform that emphasizes consumption taxes and maintains clear definitions, respecting taxpayers’ financial privacy. Along with a healthy does of eternal vigilance, that is.
July 25, 2012