The overly aggressive tax system in the US is increasingly driving individuals to abdicate their citizenship. There are Federal, state and local income taxes, Medicare and Social Security taxes, sales taxes, property taxes, capital gains taxes, and on and on.  Is it ethical for citizens to move to a country where taxes are more reasonable?

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About John Hooker

T. Jerome Holleran Professor of Business Ethics and Social Responsibility Tepper School of Business Carnegie Mellon University

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  1. John Hooker says:

    This is not only an issue in the U.S. Wealthy individuals from northern Europe sometimes relocate to avoid taxes that are even higher than in the U.S. They also, of course, park their assets in tax shelters like the Cayman Islands.

    Let’s suppose someone (call her Jane) leaves her country because the tax rate is too high (i.e., higher than X). I think we also have to say that there is a second reason: Jane can afford to leave and has a means to support herself abroad (a job, investments, whatever).

    This seems to make Jane a free rider, because she can afford to leave due in part to educational and other benefits she received in her home country, and these are supported by taxes. Now she wants skip out on paying for them when it comes time for her to chip in. This looks like a violation of the generalization test, but let’s apply it carefully and see if it is.

    First, a clarification of the test. When it asks whether the reasons for an action are consistent with everyone’s performing the action, it means everyone past, present, and future.

    If everyone were to have taken Jane’s option in the past, we have to ask whether she would be able to afford departure or would have the qualifications/savings to support herself abroad. If not, Jane’s departure is not generalizable. The outcome depends partly on what X is, but for most reasonable values of X, the country would have lost most of its economically successful people and would have very limited resources to build a physical and educational infrastructure. This would make it impossible for Jane to leave or benefit from leaving.

    Jane may craft a more nuanced reason that is generalizable. She may say that she is leaving in part because most of the tax money is wasted. It is spent on purposes that don’t build infrastructure or benefit the people. She is willing to pay a tax rate that is necessary to sustain the kind of support she has enjoyed.

    This means, however, that if she researches the matter and discovers that, in any realistic political system, her country’s tax rate is in fact necessary to provide these advantages, she will change her mind and pay the taxes. If she is willing to do this, then her departure is probably generalizable.

    Jane can of course fabricate a rationale like this and tell everyone it is why she is leaving. But this doesn’t make it ethical. It is ethical only if this really is her rationale. That is, she would be willing to stay home if the high tax rate were necessary to make her departure possible and beneficial to her.

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