Should you choose between charity and tax?

This is a topic I’ve been rolling around in my head for a while.

I work for a charity, so that’s one reason I’ve been thinking on it.

The other is that I’m neck deep in the FIRE community, which is (a) somewhat obsessed with the best use of money and (b) often looks up to and seeks to learn from the most successful (rich) people like Elon Musk or Warren Buffet.

Now, for most of us we don’t exactly have a choice about paying taxes, although you do have some choice around the margins (‘tax efficiencies’).

But that doesn’t mean we shouldn’t think about the morality of taxation, and whether it would be desirable to – say – retire early and assuage our guilt for lack of tax contributions by giving lots to charity.

At any rate I find this whole topic quite interesting. Maybe you do too? That sentence pretty much sums up the point of this blog.

The case for charity – introducing effective altruism

Effective altruism is the idea that you can make a massive difference to people’s quality of life by choosing the best charitable interventions.

I won’t go into tonnes of detail on it here, but check out this website and I’d also recommend reading the very persuasive book Doing good better.

The contribution of effective altruism is to cut through the big problem many people have with charity – that you can’t trust them to use the money wisely – by borrowing scientific methods like Randomised Control Trials to check what actually works.

Results from these studies can then be published widely, and charitable giving becomes hugely hugely life changing.

Putting this post aside for a moment, absolutely everyone should read this stuff to understand just how much good it is possible to do with your spare cash. 

I find the case kind of unanswerable and it’s prompted a bit of a moral crisis in me about how little I give. This post is a small insight into that crisis.

If charity is so great, why pay taxes?

There is no doubt in my mind that you can use your own personal powers of rational decision making to seek out and support the most effective charitable causes.

But, with respect, I also doubt the limits of your personal powers of rational decision making.

Sorry, it’s not meant to be personal! If it helps, I think the same about my own ability to choose the right causes.

We’re all a bit irrational, and more importantly we can only process so much information before we have to take some mental shortcuts to come to a decision.

Even the effective altruism movement’s favoured charities, arrived at through semi-scientific study, are imperfect conclusions made from imperfect (but still excellent) research.

That isn’t to denigrate what they achieve. Far from it; I’m a convert.

The point is that effective altruism is all about making relative judgements between charitable causes; why should I choose charity X over charity Y?

I don’t think it yet has the tools to work out how resources should be used in the long term and in sustained ways.

In my opinion, this imperfection limits how much money you should put into it.

In other words, I think effective giving should be just one part of your portfolio.

Much as you might balance investment in equities or property with bonds or cash to get a diverse and therefore less risky investment portfolio, you should balance your charitable giving with a generous dollop of taxes.

Why taxes?

To put the case very simply: 

Taxes fund government. Government is produced through collective decision making (democracy). Therefore, it is an antidote to the limits of your individual decision making.

To put it in a bit more detail:

We live in a democracy. It’s far from perfect, but it is a type of democracy in that people who are elected by free votes make decisions in a process of deliberation.

They are in turn somewhat kept in check by the threat of future loss, opinion polls, a professional civil service, and the fact that crap laws get shredded by testy judges.

Because there is an imperfect-but-definitely-real connection between what the general public think is right and what our taxes are spent on, you get a wisdom of crowds effect that means stuff you personally might not care about or even consider (e.g. ‘Sure Start’ if you’re not a parent) gets to happen, even while you donate your charitable pot to stuff you care about.

This argument is even more powerful when you consider that the vast vast majority of people aren’t giving away a significant proportion of their wealth to charity, but I think it still works for those who do.

So, while I think our democracy could be way better, it is our best bet for those of us who want our money to do good but don’t trust ourselves to donate it all in the most helpful way. (That should be everyone, you’re not as smart as you think you are)

This is an argument from modesty, in a way that is not completely different to Ms ZiYou’s blog post about how ‘The Bros scared me off active investing’.

(Ms ZiYou is another FIRE blogger)

When should you not value taxation?

When government is demonstrably crap, because that weakens its effectiveness as an instrument for collective decision making about what we value as a society.

But this is harder to demonstrate than you think. Remember, you have to demonstrate its crapness beyond your personal opinions.

The essence of this modesty argument is that you’re trying to balance out the probability that you will often be wrong, no matter how clued up you are.

Right now it looks a lot like the UK government is worthy of divestment. It’s too chaotic to be doing any good.

Still, we live in a democracy. This means there is an inbuilt corrective, which is called the Opposition. Within the next three years a rubbish decision making authority can be replaced with a better one.

Obviously some people might question just how much better the current Opposition will be.

And at this point some of my lefty friends might point out that all governments ever in the UK have been merely liberal governments; why pick the best of the worst when you should be focusing on rallying the people to revolution? (I think glorifying revolution is childish and we’re probably too old as a society to have one anyway)

Even given this, I still think it would be irresponsible to divest from taxes in the UK. That’s because our government isn’t just a result of politics now, it is a result of the concrete achievements made by politics past.

The past gains of our democracy include:

• The NHS
• Universal education
• Open University
• Roads and assorted infrastructure
• Coordinated recycling
• Welfare safety net
• Citizens Advice
• Coordinated foreign aid
• Etc. (this is all getting a bit ‘what have the Romans ever done for us?’)

What links the items on this list is that they have an intrinsic and long term value that is probably quite hard to accurately measure.

They all have varying degrees of common approval, but would be hard to achieve through charity alone or private enterprise.

(Citizens Advice is a charity, but it’s universal and free at the point of need mostly because it’s supported by public funding)

I suspect that all of them are more or less valuable at different times, but that losing any one of them in a time when they’re less valuable would be hugely risky.

It would be risky because rebuilding something that has been pieced together over years of ad hoc democratic decision making is about as simple as rebaking that cake you made without a recipe that turned out to be mind-bendingly marvellous.

So why do you love the state so much?

Maybe I’m coming over a bit zealously pro-state on this blog?

It’s true that in an earlier post I made the case strongly for public enterprise over private enterprise.

But here I am really just trying to make quite a humble point, which is that taxation has an important place in your portfolio.

Even this would make many more orthodox socialists shudder. By using the language of ‘portfolio’ and equating taxes with charity, I prove that I am corrupted by that neoliberalism thing people bang on about.

*Shrugs*

If that is the case I’m not really sure what to do about it, because I think the argument still stands.

On a personal level this isn’t a passive argument for me. I think all of the above points make quite a good case for paying your taxes, but I also think they demonstrate why political campaigning is so important.

Why? Because it’s so clear that government doesn’t just happen, it’s arrived at. Through time, and collectively.

As a result of this, being involved in campaigns and politics has two major benefits.

Firstly, assuming you do it effectively by knocking on the doors of a wide ranging group of the public rather than sitting in meetings with people you already agree with, you will learn a lot.

It is a great education to expose your individual opinions to those of many others (the ‘best kind of education’ as old Labour MP Emanuel Shinwell puts it in this clip), and although that can be uncomfortable, you will probably find that it benefits your own thinking.

Secondly, for collective decision making to work well and be defensible in the way I’ve tried to defend it above, it needs to be contested. That means you need to get involved and promote your own agenda. 

For example, I think too much money is spent subsidising the car industry and not enough supporting public transport. 

By getting involved in political action the worst case scenario in this example is that you are ineffective. The next worst case scenario is that your opinion gets changed in the process (see above) (that’s actually not a bad scenario). Best case scenario, the thing(s) you are committed to actually happen, which makes the value of your taxes go up even further.

Other reasons to pay taxes

Finally, maybe it’s worth just saying that I do think there are other reasons we should pay our taxes:

• It’s pay back: your own success was built on public money and on the cheap labour of people who make our society run smoothly but need extra resources because their employers don’t pay them enough.
• It’s fair(ish): everyone else does it, so by opting out you’re leaving it to others to shoulder the burden. I’m looking at you, Amazon.
• It re-distributes unfair advantage: yes I know your daddy worked awfully hard sitting in his air conditioned office to earn the money you’re now using to start a business, but maybe society would be better off if we improved the chances of other cleverer people being able to start businesses by taking some of that off you and investing it in to education/childcare/infrastructure.

So there you have it; pay taxes because you’re not as clever as you think.

You should be modest and assume you don’t always know best. For much the same reason that you probably favour passive investments to active stock picking.

(Although I admit the finances analogy kind of sucks because financial return on investment is about betting on one outcome; how much money will I make. If the analogy was watertight I’d be saying you should both make passive investments and practise active stock picking because they offer different kinds of value…)

I hope you enjoyed these ramblings. If you have any thoughts on the topic please comment below! 🙂