[Opinion] Is Tax Escape Right?

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Foreword

Several days ago, there is a meetup with my friends from high school. In meetup, I have a small discussion with one of my friend who is currently pursuing an accounting degree about future career plans. During the discussion, she told me that she is taking a professional paper, and it is extremely difficult, especially for her, who do not have any prior experience in accounting fields. So, I ask her about why does she not take any accounting part-time during any of her sem break. Her answer to that question is she hate accounting, so she wanted to delay the time she works in accounting fields and would prefer to enjoy working on other part-time jobs such as promoter or cashier during sem break instead of accounting part-time.

However, accounting degree holders are not limited to just accounting fields, but can also pursue a career in banking, finance, and a lot more. So I ask her if she ever considers pursuing a career in any other fields besides accounting. She then told me that she is not interested in banking or finance, but is more interested in both business law or tax. This is where the idea of this blog comes from.

When we think of tax, naturally we think of how can we reduce the amount of taxes we need to pay, and tax escape is one of them. One of the most popular career to pursue that are related to tax is tax consultancy, and there is a high probability of a tax consultant involved in tax escape. This can come in the form of company consultancy scope of client offline request, and meanwhile, the legitimacy of a company might be able to avoid the former, the latter is irrelevant to the legitimacy of the company one working in.

My thought at that time is that there is nothing wrong with tax escape since one does not harm anyone during the process, except it’s a requirement from the government, and a law is a completely different thing from moral all together.

During that night, while lying on the bed trying to sleep, I started thinking about this question, and I had come to my own conclusion to the question, which is what I am going to discuss here today.

Tax, by definition, is a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions. The question here is what rights do a government have for taxing workers’ income, business profits or added cost of goods and services. In order to discuss that, we need to first discuss how would a world where a government does not exist looks like.

State Of Nature

State of nature is a world where no higher hierarchy and authorities exist. In a state of nature, governments do not exist, neither do mayor, army, police, village head or any form of authorities. So, what will state of nature looks like?

According to Thomas Hobbes school of thought, in the state of nature, everyone has every right to everything, that which include the right to kill, the right to imprison, the right to rape, etc. Take murder, for example, the murderer is not unjust as he is merely exercising his right, neither does the victim is just, as justice does not exist in a state of nature. If one has to find just in a state of nature, it would be might. These lead to the famous quote of Thomas Hobbes.

"No arts; no letters; no society; and which is worst of all, continual fear and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short." ― Thomas Hobbes

When there are east, there will be west. when there are good, there will be evil. When there is Thomas Hobbes school of thought, there will be Jean-Jacques Rousseau school of thought. Rousseau started with imagining a scenario where you and your friend went on to a sea trip. Somehow, some kind of accident leads you and your friends to a deserted island. There, on a deserted island, no higher authority exists, which resemble the state of nature. Would you start killing each other among your friend, or will you cooperate with each other, trying to find a way out of the deserted island? I believe most of us will choose the latter as it increases our chance of survival.

Again, he gives another hypothetical scenario, where there are two hunters in a jungle trying to hunt for animals, rabbit in this scenario. One day, when both of them out for hunting, they met each other. Now, they have two choices, first which is to cooperate with each other so that they can hunt down bigger prey, or they can fight with each other, chasing each other out of their “hunting ground”. If you are one of the hunters, would you go for former or latter? Most of us would say former, because by cooperating, not only we did not lose our original benefits, we gain extra benefits on top of it as it is a positive sum game.

These hypothetical scenarios are where Rousseau conclude that in a state of nature, people will cooperate with each other, and it is the best state where a human can be in. However, these hypothetical scenarios have the assumption where people involved knows the benefit of cooperating with each other, and the very same hypothetical scenario is given to us, who are conditioned to live in a civilized society since born. With that assumption, we cannot conclude what kind of action would a person take when given to be in a state of nature.

Today, unlike both the political philosophers mention above, we now live in Post-Darwin era, and we have the evolution theory, where we know that evolution happens through the natural selection. Today, we know the most basic objective of living things, which is will for survival. Maybe, and just maybe, Rousseau is right, because by cooperating with each other, it increases the chances of survival, which all of us will choose if we would have been in a state of nature and even if we are not to be conditioned by civilization since born. But, throughout history, any form of tribes or hunter-gatherer always has warred with each other. For this, we need to look at the 3 main motivation for violence.

The first 2 motivations are tightly related to the chances of survival. The first motivation for violence is self-defense. One uses violence for self-defense when facing violence imposed by other people, hoping to be able to survive from it. The second motivation for violence is to use violence in order to avoid being imposed on violence from other peoples. These 2 motivations are the main motivation that motivates most tribes or hunter-gatherer to exercise violence when their chances of survival are still low. So, although in the state of nature, chances of survival might increase for every person one cooperate with, there will be a point where it no longer increases the chances of survival for every extra person one cooperate with, and it might even decrease the chances of survival as more people might results in more conflicts.

Besides, when one collective increase their chances of survival so much to the point where chances of survival are no longer taken into consideration of making choices, this will brings to the third motivation of violence, which is glory. Take a relatively big civilization, for example, perhaps with a population size of millions, chances that they are stable to a point where they no longer need to think about survival all day long are very high, and survival will no longer be the sole motivation behind every decision. Survival might still be the motivation behind starting some of the wars, the rest is for glory. To explain this, we need to look into theories that attempt to explain human behavior which we are aware of today.

There are 4 major theories in total, the first being discussed above, which is will to survival from Darwin. The remaining 3 are will to power from Nietzsche, will to meaning from Franklyn and will to happiness. Every single human behavior, as far as I know of, can fit into one or more of these theories, and glory potentially belongs to all 3 besides will to survival.

So, if there is one thing which we can conclude, it is going to be that the state of nature, regardless of how it actually looks like, will not be able to run away from violence. This brings us to the next section, which is the role of government.

Social contract

In a state of nature, everyone has every right to everything, and there are a lot of rights which will bring undesired outcome, which includes rights of imprisonment, rape, steal, kill, etc. Since these are deemed undesired by most people, and avoidance from the undesired outcome from the rights are more important than having the rights itself, this is where the function of a social contract comes in. A social contract is created when a group of people comes together, give up a certain part of their rights in order to gain protection from having other people exercising the rights. These rights that had given up will be transferred to the body which governs the social contract, in most cases, the government, and the peoples who the social contract are applied to is a citizen.

To the question of what are the rights that most people willings to give up in order to get the respective benefit of it, it had been discussed for centuries by various political philosophers, and each of them has a different version of it. However, there are certain rights which are very obvious to which most of us are willings to give up in exchange for its benefit, which is:

1. Give up the rights of violence in exchange for social peace

2. Give up the rights of steal and rob in exchange for property rights

3. Give up the rights of rape and murder in exchange for protection from it

These rights that had given up by us naturally are transferred to the government and the government can exercise these rights in the event when someone violated the rights which they do not have in order to ensure the rule-abiding citizens who had given up their rights receive their respective benefits. The exercising of these rights can come in the form of imprisonment, interrogate, torture, whip punishment, death sentence, etc.

To demonstrate it, let’s take the hypothetical scenarios created by Rousseau. An accident happens when your friend and you went on to a sea trip and ended up on a deserted island. Everyone worries about the other 6 misbehave, so all of you came to the agreement of the list of things which everyone is refrain from doing it, and if anyone violates the list, the person in question will be killed by the rest of the people. Here, since there are only 7 persons involve, it is manageable. So, all of you started a new life on the island and everything went smooth.

Few days after that, an accident happens on a large cruise ship not too far away from the deserted island which resides all 7 of you. On the cruise ship, there are more than 6000 passengers, but only 1500 made their way to the deserted island which you reside. Now, the population on the island had increased from 7 to 1507. Everyone on the island now had a town hall meeting, except it isn’t in a town hall but at the side of the beach, and everyone had again come to a new and more sophisticated list of things which one refrains from doing it and each of their consequences, instead of just killing off the offender. It is all good and nice, except a population of 1507 is no longer manageable with the previous way of managing it. So, all of you had decided to pick 100 strongest person out of the population to be the “police” who collectively assume the responsibility of the government and ensure the rule of law are put in place.

Of course, without any benefits, these 100 strongest people would not carry out their job. They do not have the obligation to do so. So, the rest 1407 of the population yet again come to another agreement where every one of you will sacrifice one day worth of your production per month to a pool where it will be equally distributed to those 100 people. These 100 persons agree with the deal, and they now have the obligation to ensure the rule of law.

The one day worth of production which contribute to the pool is precisely tax. To the question of why they decide it to be one day worth of production instead of a fixed amount, says, 10 coconuts, is because, within the rule, one refrain from stealing from others, and it requires much more manpower to ensure one’s 1000 coconuts to not stolen by others than one’s 5 coconuts to not be stolen by others. Naturally, it is fair that one pay more when one receive more benefits, in this case, the manpower which ensures one’s property right.

So, understanding all these, what does it mean for tax evasion, or in the above hypothetical scenario, secretly not paying his worth of coconuts.

Tax Evasion

Above, we had reached the conclusion that tax is a form of payment in order to ensure the benefits in exchange for the rights we had given up. Without it, the organization that assumes the responsibility will fall apart, and when it falls apart, nothing can ensure the rule of law, and one will no longer receive any benefit upon giving up the rights. Eventually, it will go back to the state of nature.

Therefore, tax evasion essentially means putting the cost of one receiving the benefits from rule of law onto others. Allow me to elaborate on that.

The organization that assumes the responsibility to ensure the rule of law, in this case, the government, has the minimum cost required for operation. Take the 100 strongest people in the deserted island, the minimum cost, in that scenario, will be the resources required in order to meet their basic needs. Basic needs vary from time to time, depending on a lot of different factors, and it will not be discussed here, but we will simply assume food, shelter, and a seat on the ship which they are building for escaping the deserted island. Initially, those 1507 peoples on the island had come to the agreement to contribute one’s one day worth of production to a pool for sustaining the government (from now on we will call the 100 strongest people government) because when everyone pays their one day worth of production, it is sufficient to sustain the government. Everyone is happy for the time being.

However, a few weeks after that, a small group of people stops contributing their portion of resources into the pool. Soon, the pool running low in resources, and it no longer able to sustain the 100 persons, which leads to them not as motivated as ever before. Realizing this problem, everyone gathers and have another town hall meeting. By the end of the meeting, they had again came to the new agreement, which is to contribute one and a half day worth of production into the pool every month. Slowly, more and more people stop paying their worth of resources, and the whole loop happens all over again. Clearly, those people who had successfully escape from contributing their worth of resources had shifted their portion of the contribution to those who continue contributing their production to the pool.

Therefore, tax evasion is wrong because it means wanting to enjoy the benefits without exchanging what it requires to sacrifice. Equivalent exchange is the foundation everything, and to deny it is to deny the value of everything in the world.

Counterargument

Now, you may think, what if it is not only the small group of people who stop paying their worth of contribution that leads to the lack of resources for maintaining the government, but it’s also among the 100 people who steal and misuse the resources in the pool. In that case, wouldn’t continue contributing to the pools simply means to helps those corrupted people in corruption?

To that question, people who will misuse their power will misuse their power regardless of if you contribute to the pool or not. What one should do is to contribute to the pool so as not to shift one’s portion of the contribution to other peoples, and carry out other parts of one’s responsibility in the society, which is to think about the solution to the problem, work with the government to solve it, and overthrow the government if they are too corrupted. To translate that to the real world action, it can be participating in any anti-corruption political movement, contributing to related discussions in solving the issues, actually running for a position in the government so to change it from the inside, vote during the election, etc.

However, one might also argue that there is fundamentally nothing wrong with tax evasion. What’s wrong with shifting one’s portion of the contribution to others when in nature, might is justice. Might, in this case, will be one’s resources required to successfully perform tax evasion in the very first place. It can come in the form of tax consultation fees, human resources, etc. Might is justice, and therefore, there is nothing wrong in shifting one’s contribution to other people.

The answer to this argument is extremely simple. When one escape from paying tax, naturally the person in question also give up his benefits exchanged from paying the tax, and there will also be nothing wrong, in that case, for the government to exercise their rights in confiscating his property, as the government has higher might, and might is justice.

Conclusion

What had been discussed here are all based on theory. In the real world, it is not going to be as straight forward as what being portray here. However, while it is not morally correct to practice tax evasion, we should also strive towards a system that minimizes morally wrong practices, such as corruption, tyranny, etc. Essentially, the future of a country is what we wish for it as a collective, and we as an individual has the power to decide what a country should be like.