Tax doesn’t have to be taxing
How do you feel about tax?
Do you think positively or negatively about giving the government a portion of your money each month from your paid salary, or each time you purchase goods and services? Do you think about it at all? Have you ever wondered where that money goes? Have you ever ‘done the math’ to think about how much you might have given over the course of your life, and what that may have funded? Do you feel as if you are contributing to society in the same way you might do after giving money to a charity? Or do you feel more that ‘tax is theft’?
Perhaps inspired by Rory Sutherland’s book, I’ve been thinking about tax.
A strange thing to find yourself daydreaming about to be sure, but I‘ve been pondering how much of a bad rep tax gets, given that it funds so much good in society.
How might one change tax’s image? Sweeping international tax reform seems like a big ask, so I found myself wondering if the answer may in fact lie with a cheeky bit of repositioning, a rebrand if you will. A rebrand that would change the perception of why it is right and fair that we pay tax and in doing so, we are in fact doing good.
Let’s look at how we got here and whether you agree with Calvin Coolidge that “Collecting more taxes than is absolutely necessary is legalized robbery.”
Death and taxes
If you google ‘quotes about tax’, there are precisely zero quotes from famous folk over the years that sing the praises of a system of centralised government spending funded by everyone sacrificing a portion of their personal wealth according to their means.
Instead, you get these doozies:
Mark Twain clearly wasn’t a huge fan of paying his share.
Tax is often seen as a necessary evil, but an evil nonetheless. Most people seek to minimize the amount of tax they pay at every opportunity, be that through seeking the help of a financial advisor, through to the very very gray areas of ‘expensing’ personal stuff through a company to avoid paying VAT, or being paid or paying in cash — or other things wealthy people do that I don’t understand — to avoid handing over ‘their hard earned wealth’ to the taxman.
Tax cuts are ‘good’ and make front page news, while increases are signs of huge government overreach, stifle consumer spending, undermine growth and reduce the incentive to ‘do well’ (as if higher taxes would stop those pursuing wealth from doing so). The fact that there’s an ongoing discussion around tax avoidance vs tax evasion is telling. Shouldn’t both be bad? Why do we think of tax as a fine for doing well?
Even the word ‘tax’ is used to only denote something that takes away — if an activity is ‘taxing’, no part of that activity benefits anyone. It drains, it erodes. ‘Tax doesn’t have to be taxing’ has become the strapline of HM Revenue and Customs in the UK to acknowledge this inherent contradiction in what they actually want you to feel about tax. It feels like they’re saying ‘pain doesn’t always have to be painful’. It is painful. It is taxing.
For many people, they see their money as the fruits of their labor — they did the hard work to earn it, so why should any of it be taken away from them? How dare anyone, let alone a big, inefficient, bureaucratic, corrupt government not only encourage, but make it legally necessary to fill their coffers with my money!
This isn’t new. Tax’s bad reputation has been about 5000 years in the making. If you think today’s use of tax revenue is bad, wait until you hear what it was spent on for the first 4500 years of its existence.
(Historic) Tax — mainly for funding wars you don’t want.
The earliest records of tax collection date from 3300 BC, from Ancient Egypt. There were some forms of taxation in ancient Rome, too. In Britain, income tax was introduced by William Pitt the Younger in 1799. This, like the taxes that came before it, was mostly to fund wars. Income tax in the UK was used primarily to fund the war against Napoleon and, at the time, this was billed as a temporary measure It was repealed and reintroduced a number of times over the coming decades in line with major wars fought by Great Britain, before being reintroduced in 1842, and has been with us ever since. Interestingly although this tax has been in force every year since, even now it retains its ‘temporary’ nature and has to be renewed annually by Parliament.
I suspect this early type of spending was a large source of the contempt towards tax. Great Britain really seemed to get the taste for conflict after introducing the means by which to could fund it. No less than 67 wars involved Great Britain in the 114 years after the tax was introduced and before the First World War (debatably the only war in that time that was anywhere approaching necessary).
Though no such polls existed, I suspect the common worker had very little to gain from all of these conflicts — their income was therefore trimmed to build empires, to wage war and shift geopolitics on a scale and at a distance that did not affect the citizens of the UK in any meaningful way. Tax revenue didn’t feed hungry children, or fund life saving healthcare directly. But it did ensure that our king was declared the king of Kandy (modern Sri Lanka) in 1815. One could argue that historic UK economic wealth was derived from the Empire, but I think you’d have a hard time justifying that path to prosperity on moral grounds rather than using the same revenue to invest internally in the UK’s infrastructure, health and education. Imagine a modern government arguing the path to growth was by invading Sri Lanka again.
That’s quite the reputation to shake off. Central government in that time was very small, its scope for spending was tiny compared to today. Taxes taken didn’t affect citizen’s lives directly and unless they were really really hot for the British Empire, were likely to be seen as extremely taxing, with no upside.
Tax — not just for wars anymore
Imagine for a moment that you live in a country where there is no taxation. Your income, spending and inheritance are all yours, with everything needed in society provided by the good ol’ free market. Before you wonder at how glorious this might be, consider that you (or your family) would have to find ways to fund a huge amount of spending before you could work full time and pay your own way:
- Every doctors and hospital appointment, including your birth.
- All public services including every single use of a road, or street light, or public toilet or waste disposal (if the free market even found a way to provide these at all).
- Insurance or hefty legal fees should you ever find yourself on the wrong end of the law.
- Insurance premiums you would have to pay to cover schooling, fire, police, unemployment, health services should you need them.
- Whatever nightmare scenario it would take to pay for national defence or local militia to defend you.
- An ‘opt in’ service if you wanted to pay for anyone to maintain international relations and negotiate international trade deals — likely to be completely un-viable unless everyone else also opted in.
Now flip that on its head for a moment. We celebrate philanthropists — those that give a portion of their wealth to fund schools, hospitals, art galleries, set up their own charities for feeding hungry school children, or buy computer equipment for a university.
But this is exactly what all of us are doing, every time we pay tax. Just because we don’t ‘opt in’ to this, doesn’t change the fact that our taxes are being used to pay for exactly these things.
Someone has ‘done the math’ for UK taxpayers — incredibly, over a lifetime — 40 years working and 15 years retired — an average household will pay £1,101,255 (in 2019–20 prices) in direct and indirect taxes. While household incomes have increased, the lifetime tax has almost doubled in real terms from the amount of tax the average household paid in 1977.
What could that amount of money pay for?
Well if we made pots based on how the current government spends its coffer, you’d get the following:
- 20% on healthcare — £220k
- 10% on education — £110k
- 13% on welfare — £143k
So that means a household pays enough tax to choose any one of the following options:
This, to me, is wonderful.
Isn’t it incredible that every tax paying household is doing this? All of us that pay tax are paying for the key workers that we all clapped for during the pandemic. We’re feeding kids at school, we’re paying for the support that the disabled and elderly need. It is a wonderful shared act of community that we engage in every time we receive a pay check, every time we pay VAT. I don’t mean this in the way an angry entitled person might scream “I PAY YOUR WAGES” at a nurse, but instead there seems to be a wonderful shared commitment from taxpayers to keep this whole ship running in a way that reflects our shared buy-in to society.
How then do we not look down on those avoiding tax (the entirely, 100% legal and often encouraged practice of minimising tax)? Why are tax increases (especially for those on higher incomes) not celebrated?
Alain De Botton is one of the few I could find that shares this view. He says that
“Paying tax should be framed as a glorious civic duty worthy of gratitude — not a punishment for making money.”
De Botton also says that the word ‘tax’ is “colourless, odourless and offensive”. I think for some (maybe most) people it is actually worse than this. Tax is worthy of derision. It is perfectly acceptable to roll your eyes when talking about the amount of tax you pay — to curse its existence, to bemoan having to pay any tax at all.
Might the word itself be the key? To shed the name that was given as a way to wage unnecessary wars in far away places and replace it with something that is more reflective of this ‘glorious civic duty’?
What’s in a name?
Ever heard of BackRub, Cadabra, Pete’s Super Submarines or Brad’s Drink? You have, you just haven’t heard them called that. Because those brands went on to become Google, Amazon, Subway, and Pepsi. Their names were not very good, then they changed. Now we all know them.
Other brands have changed their names after their brands became toxic — Facebook has become Meta, the Lance Armstrong Foundation became Livestrong, McAfee became Intel security.
The right name can conjure a feeling, and resist others. A renaming can also shake off the baggage of the past and start afresh. The full adoption of the new can take a while, sometimes years or decades, but eventually people will only recognise the new name and associations with it.
Could we do the same thing for tax?
Admittedly naming things is hard, but couldn’t we pick a word that better describes and captures the essence of an exchange — that ‘glorious civic duty’, worthy of praise, thanks, and admiration?
Alms, tides, benefaction, offering, koha (a maori word). None of these seem quite right.
How about this:
Probably a touch communist and totalitarian for some, but bear with me here.
This captures what we’re doing — contribution to the continuance, support and improvement of our society as a whole. We are giving up some of our wealth and income, but it is not a punishment. It’s because we understand the social contract, that we accept that we have and will benefit throughout our lives from things that should not and could not be provided in a free market. We are adding to a communal pot with which nations can decide our priorities and fund projects we deem worthy.
Imagine too the front pages of a newspaper celebrating swapping cuts in contributions made by us. Imagine a politician running on a platform where they are actively reducing the amount of contributions corporations have to make. Picture a billionaire complaining about the contributions they have to make.
Imagine the debate surrounding contribution avoidance vs contribution evasion. Both now simply sound unworthy of praise. Imagine a financial advisor advertising ‘how much they could reduce the amount you have to contribute each year’. Imagine corporations and the wealthy defending offshoring to avoid paying contributions in the country where they sell goods and services.
Changing the inherent sentiment of the word we use completely changes how we think and speak about what we’re really doing with tax. This isn’t to suggest we should always be aiming to increase contributions everywhere all the time, but giving fair contributions sounds much more praiseworthy than simply paying the right amount of tax.
‘Contributions’ might not be the one, but at least it isn’t odourless, colourless and offensive. It speaks to the shared act of adding into a communal pot to build. It is active, worthy of praise, and should not be avoided or evaded.
Woah woah woah
It’s probably time to address the sceptics. Many might suggest that 1) a simple name change wouldn’t achieve anything and 2) that issues around tax require those larger, sweeping changes I quickly dismissed at the start.
To 1) I would largely agree. Like all good repositionings and rebrandings, it would require a large amount of additional work — to reframe how we think and talk about contributions. There’s always a lot of ‘long tail’ work that follows something big like this. But I do firmly believe that names are important and the right name can genuinely change how we think about something.
To 2), I also accept that. The other big reason why people view tax negatively is that they simply do not trust that their contribution will be used efficiently and in a way that fits with their values and priorities.
Trust in governments has fallen drastically over the last 30 years. Back in 1986, only 38 per cent said that they trusted governments “to place the needs of the nation above the interests of their own political party”. By 2000, this had more than halved to just 16 per cent. After rising somewhat, it returned to a similar low in the immediate wake of the MPs’ expenses scandal of 2009 and, at 18 per cent, the latest figure is only a little better.
It is also true that the perception of fairness of taxpayers will increase when trust in the government increases. Tax compliance increases when trust in government increases. In other words, if we believe that our government is not corrupt, acts with integrity and in the interests of its people, we pay more tax and feel better about tax in general. The reverse is also true.
For that, there isn’t an easy fix. But, something that might help is linked to our new notion of contributions. Instead of the black hole that we seemingly throw our money into, imagine if at the end of each tax year you got a thank you note from your government, explaining how it has apportioned its revenue, what it has gone towards and the difference that has made. It wouldn’t have to be too heavy on the propaganda, but explain in transparent terms some of the impact that your contributions have made.
It’s personalised customer marketing at a grand scale, and would go leaps and bounds in to increasing perceptions of transparency and trust in our institutions.
If the only two certainties in life were death and a glorious civic duty, that wouldn’t be the worst life imaginable.
I look forward to paying my contributions throughout 2023.