The link between neoliberalism and tax avoidance is the argument that neoliberal policies, namely deregulated capital, low taxes on wealth and business, competition between states and a view of taxation as a burden, created the conditions in which large companies and wealthy individuals can legally reduce their tax bills, and made doing so socially acceptable. Tax avoidance is the legal use of rules to minimise tax, whereas evasion is illegal, a distinction explained in the differences between tax avoidance and tax evasion.
What is the link between neoliberalism and tax avoidance?
The argument has three parts. First, the policies associated with neoliberalism, in particular the removal of controls on the movement of money and the encouragement of global trade, made it easy to move profits and assets across borders. Second, neoliberal thinking about the state treats taxation as a cost that reduces incentives and efficiency, so that lower rates are presented as a goal and not a problem. Third, the political and cultural climate that results makes it more acceptable for firms and wealthy people to treat tax as something to be minimised. Sociologists studying the topic ask not only how avoidance works, but also why it has come to be seen as normal.
It is important to state the limits of the claim at the outset. Tax avoidance is far older than neoliberalism. In the 1936 case of the Duke of Westminster, Lord Tomlin stated the principle that every person is entitled to arrange their affairs to reduce their tax. The argument is therefore not that neoliberalism invented avoidance, but that it changed its scale, its respectability and the ability of governments to resist it. The detailed mechanisms are described in methods of tax avoidance and in understanding tax avoidance through a sociological lens.
How did deregulation and globalisation make avoidance easier?
From the late 1970s, governments in Britain and the United States removed exchange controls and loosened regulation of finance. The abolition of UK exchange controls in 1979 and the deregulation of the City in the 1980s made it simpler for capital to move. Companies could organise themselves as groups of subsidiaries in many countries, and set the prices at which the parts traded with each other, so that profits could appear in places where tax was low. This practice, usually called transfer pricing or profit shifting, was identified by the OECD in its Base Erosion and Profit Shifting project, begun in 2013, as a major problem.
Tax havens, where low rates or secrecy attract foreign money, grew alongside this. Nicholas Shaxson’s Treasure Islands, published in 2011, argued that offshore finance is not a marginal feature but an integral part of the global economy, with London and its network of overseas territories playing a central role. Gabriel Zucman estimated in The Hidden Wealth of Nations in 2015 that around eight per cent of the world’s household financial wealth was held offshore, most of it untaxed, though estimates in this field are uncertain by their nature. Related background is available in the post on multinational corporations.
How does tax competition lower taxes on capital?
Neoliberal globalisation encourages governments to compete for investment, and one form of competition is the tax rate. In the United Kingdom the main rate of corporation tax fell from 52 per cent at the end of the 1970s to 19 per cent by 2017, before the government raised it to 25 per cent in 2023. The top rate of income tax was cut from 83 per cent on earned income to 60 per cent in 1979 and 40 per cent in 1988. In the United States the Tax Cuts and Jobs Act of 2017 reduced the main federal corporate rate from 35 per cent to 21 per cent. Supporters argue that lower rates attract investment and increase growth, and the idea of supply-side economics, sometimes illustrated by the Laffer curve, holds that cutting rates may even raise revenue. Critics say the evidence for large effects on investment is mixed, and that the main result is a race to the bottom in which states lose revenue.
The same logic applies to special regimes. Ireland’s low rate of corporate tax, for years at 12.5 per cent, was used by large technology and pharmaceutical groups, and Luxembourg’s agreements with firms were exposed by the LuxLeaks documents in 2014. The OECD and more than 130 countries agreed in 2021 on a global minimum tax of 15 per cent for large multinational groups, and some countries began to apply it from 2024. That governments which had competed on rates then agreed a common floor suggests that tax competition is a political choice and not an inevitable result of globalisation.
What role do power, lobbying and professional services play?
The sociological interest lies in the power that allows avoidance to continue. Large firms employ accountants and lawyers to design arrangements, and the global accounting firms advise both companies and governments, which can create conflicts of interest. Companies lobby for favourable rules, and political donors and former officials move between public bodies and private firms, a pattern explored in lobby groups and in the accounts of elite power and the power elite. Colin Crouch argued in The Strange Non-Death of Neoliberalism, in 2011, that the financial crisis did not weaken the political influence of large corporations, which remained able to shape policy. The post on power dynamics, discourse and tax avoidance examines how language is used to present avoidance as normal and legitimate.
Enforcement matters as well. Tax authorities in many countries lost staff and funding in the austerity period, and sociologists argue that limited resources, together with the complexity of the rules, favour large firms who can employ specialists. The post on how HMRC allocates its resources discusses this issue in the British context.
How did neoliberal ideology change attitudes to tax?
Beyond policy, neoliberalism changed how tax is talked about. The slogan that government is the problem, associated with Ronald Reagan, and the language of taxpayers as victims of the state, treat tax as a burden to be reduced and not as a contribution to a common good. This contrasts with the view set out in the role of taxes in maintaining social cohesion, in which tax is part of a social contract that funds shared services. When individualism dominates, it becomes easier to see tax planning as a form of financial prudence, and to describe lawful avoidance as legitimate, even where it appears unfair.
Public opinion has not simply followed this line. The 2012 hearings of the UK Public Accounts Committee, chaired by Margaret Hodge, questioned executives from Starbucks, Amazon and Google about low payments of corporation tax in Britain, and media and public anger forced the companies to defend themselves on moral grounds as well as legal ones. Starbucks later announced that it would make additional voluntary payments. Such episodes show that avoidance carries reputational costs and that attitudes are contested, a theme discussed in examples of major tax avoidance scandals. Leaks of documents, including the Panama Papers in 2016, the Paradise Papers in 2017 and the Pandora Papers in 2021, published by the International Consortium of Investigative Journalists, brought the use of offshore structures by wealthy people and politicians into public view, though holding an offshore company is not in itself unlawful.
What are the consequences of tax avoidance for society?
The main consequence is lost revenue, which has to be made up by other taxpayers or by cuts to services. Estimates of the sums vary widely, and the Tax Justice Network and governments disagree about methods, so figures should be treated with caution. Where governments pursue austerity, the effect of lower revenue is felt in public services, as shown in the effect of tax avoidance on the NHS. A second consequence concerns fairness and trust. Emmanuel Saez and Gabriel Zucman argued in The Triumph of Injustice in 2019 that by 2018 the richest Americans paid a lower overall rate of tax than most other groups, a claim that has been disputed but that illustrates the debate about regressive outcomes. Thomas Piketty’s Capital in the Twenty-First Century, in 2013, showed how the concentration of wealth makes taxation of capital central to arguments about inequality. When ordinary workers pay tax through their wages while others do not, resentment can weaken social cohesion, as examined in the impact of tax avoidance on social cohesion.
What are the criticisms of the claim that neoliberalism causes tax avoidance?
There are several objections. The first is the point about history, since avoidance existed in the 1930s and in the highly taxed post-war decades, and high rates may in fact give a stronger incentive to avoid. Second, avoidance depends on many factors, such as the complexity of tax codes, the growth of intangible assets and the digital economy, which make profits easy to move, so it is difficult to separate the effect of ideology from that of technology and globalisation. Third, governments that regard themselves as neoliberal have introduced measures against avoidance, including the UK’s General Anti-Abuse Rule in 2013 and the Diverted Profits Tax in 2015, as well as the international minimum tax, which suggests that the relation between ideology and avoidance is not fixed. Fourth, some economists argue that tax competition has benefits because it restrains governments from taxing excessively, and that low business taxes can encourage investment, although others dispute the strength of this effect.
Defenders of the sociological argument reply that, even if neoliberalism did not cause avoidance, its priorities shaped the response, and that the persistence of loopholes shows where power lies. The strongest versions of the argument, in which neoliberalism is said to be the cause, are less secure than the weaker version, in which it created favourable conditions and a supportive climate.
Why does the link between neoliberalism and tax avoidance matter in sociology?
It matters because it shows how an ideology and a set of material interests reinforce each other, and because tax is a clear test of whether society treats its members equally. It connects corporate crime and legal avoidance on a spectrum, and it links to questions about the legitimacy of the state, discussed in the posts on legitimacy and the nature of wealth. A strong examination answer defines avoidance and neoliberalism, explains the mechanisms of deregulation, tax competition and lobbying, gives well chosen examples, and evaluates the claim against the history of avoidance and the evidence of recent reform. Students may also wish to read about how politicians have used tax avoidance.
