Sunday, March 1, 2015

Taking Advantage of the Welfare State

Many people living in the generous modern Welfare State do everything they can to take advantage of the system; they try to reduce their tax bill and claim as many subsidies and benefits as possible.[1] The question is whether they should be blamed for doing so? In other words, is such behaviour morally acceptable?

In fact, such behaviour is generally considered immoral, which is somewhat paradoxical since it is so pervasive. The familiar argument is that such behaviour is immoral because the individual who is taking advantage thus of the Welfare State is not paying his “fair share” to society. In this view, income tax, in particular, should be paid because it is considered the payment for the security and the social benefits that the Welfare State provides him.

But what, exactly, is a “fair” contribution to society? Different fiscal regimes of different Welfare States lead to different individual taxation rates for the same work and even for the same base salary. What is “fair” varies then, not surprisingly, from society to society. Even within the same fiscal regime, different individuals may pay the same income tax but may benefit very differently from the Welfare State. Should a person with a family of his own, who is often sick and relies heavily on transfer payments, be considered to live a morally lesser life than a single person of good health paying the same income tax but who does not - can not - benefit from such social support? Or, vice versa, two individuals may get similar benefits from the Welfare State but might be subjected to very different income tax rates. In these two examples, it is difficult to say who, if any, of these individuals is paying his “fair share”?

There are several reasons why a direct link cannot be established between the taxes an individual pays to the State, and the overall benefits he receives. Firstly, income tax is only part of the total taxation revenue that the State collects (sales tax and corporate tax make up a large part). A similar example as the ones above can be given with regards to sales tax. For instance, if one individual is more frugal in his spending habits than his friend, caeteris paribus, should this person be considered to live less morally than the latter, because he contributed less in taxes to society? On the contrary, he may very well be considered to be setting a good moral example of virtuous living. And since consumption and VAT levels are generally negatively correlated, it would seem counter-intuitive to suggest that it is moral to consume. 

Secondly, it is generally impossible to determine specifically which part of public spending on welfare comes from the State revenues originating from a particular individual. Third, the inefficient spending of many bloated Welfare States makes it difficult to state that a certain level of total individual taxation represents a “fair” or “reasonable” contribution to society. In a lean and well-managed Welfare State, in which all public spending would be optimised and perfectly accounted for, this argument might have a little more weight. And fourth, some of the most important services that the modern Welfare State provides are collective, not individual (such as security, education, environment and infrastructure). Collective services mostly benefit the individual indirectly, by generally improving the general environment in which he lives. They are, by definition, unrelated with the specific tax contributions of a particular individual.

The points above substantially weaken the argument that there is a close correlation – and, hence, a moral link of cause and effect - between individual tax contributions to society and the benefits to the individual of living in this society. Indeed, most people tacitly seem to agree with this reasoning since they rarely associate the amount of overall taxes they pay with the quantity and quality of welfare services they receive. Thus, it seems difficult to state that one person is living a morally better life than another because he make bigger fiscal contributions to society.

Finally, it is important to remember that the individual contribution to society is not limited to taxes to the State. Individuals may contribute to society in many ways, according to their efforts and their capabilities. Some of these contributions obviously come in the form of taxes, but others, such as charitable, cultural or intellectual contributions, cannot as easily be quantified and do not involve the State at all. However, most people contribute only very little or not at all to society in this non-material sense. This is not surprising since man is a limited creature and can generally only barely be expected to look after his own narrow interests (not surprisingly, tax avoidance is an entire industry in the Welfare State). 

For all these reasons, an individual cannot, therefore, be morally blamed for doing everything he can to minimise his fiscal burden and take advantage of welfare benefits. It can never be immoral for an individual to defend what he believes is his own interest, as long as he does not violate the property rights of others. An individual's actions in society should be subject to legal – not moral - judgement. All that is required of him is that he observes the Law. As Aristotle observed, there is a difference between being a good citizen and being a good man, and a person can be the former without necessarily being the latter.[2] Therefore, as long as he stays within the framework of the law, an individual should not be morally blamed if he decides to take advantage of the society in which he lives.



Notes: 

[1] Whether or not these people “need” these social benefits is not the point. The need for anything beyond basic primary needs for survival are relative and subjective needs.
 
[2] Aristotle, Politics, Book III.