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Telling Tales Out Of School, Part I

Last Monday night, when I got to attend that Tufts class on blogging, was great for me. The students had some really good questions, and I think I can wring at least two blog postings out of what they asked.

The first one was the student who gave me the biggest ego boost -- the brilliant young economics major who asked me about my piece on economics last weekend, and my Monday followup piece. (I hope he got an A on the paper where he quoted me -- unless he trashed me. Then I hope the little bastard gets an F.) He asked me if I actually meant it when I said that businesses have a "right" to evade taxes.

That got me thinking, because that certainly wasn't what I intended to say.

No, businesses -- no more than an individual -- have no right to evade taxes. I have always believed that the law is the law, and one obeys it or fights to get it changed or makes a big point out of disobeying it as a point of civil disobedience. One does not simply decide that obeying the law is too annoying or for other people and quietly ignoring the law. (Yes, this makes me a bit of a hypocrite when I speed. I accept that, because if I get pulled over, I won't argue with the cop or beg for a break or deny it.)

But while corporations have no right to evade taxes, they can be fully expected to do pretty much everything they can (hopefully, legally) to minimize their tax burden. As I said, corporations are human creations, run by human beings, and they tend to act like human beings, with all the foibles and flaws and weaknesses that go with that. And it is simple human nature to not want to pay taxes.

If you need proof, look at Massachusetts. There the state has a two-tiered income tax. The default rate is 5.3%, but if the taxpayer chooses, they can opt to pay at a 5.8% rate. This is for those people who say that the tax rate needs to be higher, that the state needs more money, and people should give more to keep the state and its essential programs going. Every year, the percentage of taxpayers who actually choose the higher rate is an infinitesimal fraction of one percent, giving tax opponents a solid datum to show that the vast majority (well in excess of 99%) of Massachusetts taxpayers don't think that they are undertaxed.

The other point I thought I needed revisiting is the matrix I described at the end, a simple 2 X 2 grid showing the four types of spending: your own money and other people's money, spent for either your benefit or others' benefit.

I didn't make it absolutely clear that this was not my insight. I was repeating -- poorly -- something I'd read, but didn't bother to look up and find the source.

Well, I've tracked it down, and it turns out that I was badly paraphrasing an idea from Milton and Rose Friedman's book Free To Choose, as paraphrased by P. J. O'Rourke in "Eat The Rich."

Here's the actual O'Rourke quote, from pages 238-239 of the trade paperback edition:

There is another difficulty with political control of the economy which keeps even the best-behaved governments from using resources well. This problem was explained by the economists Milton and Rose Friedman in their book, Free to Choose. The Friedmans argued that there are only four ways to spend money:

1. Spend your money on yourself.
2. Spend your money on other people.
3. Spend other people's money on yourself.
4. Spend other people's money on other people.

If you spend your money on yourself, you look for the best value at the best price -- knockoff Pings on sale at Golf-ForeLess. If you spend your money on other people, you still worry about price, but you may not know -- or care -- what other people want. So your brother-in-law gets a Deepak Chopra book for Christmas. If you spend other people's money on yourself, it's hard to resist coming home real Pings, a new leather bag, orange pants with little niblicks on them and a pair of Foot-Joy spikes. And if you spend other people's money on other people, any damn thing will do and the hell with what it costs. Almost all government spending falls into category four. This is how the grateful residents of Ukraine got Chernobyl.

As a commenter noted before, Winston Churchill once described democracy as "the worst form of government -- except for all the others." Likewise, free-market capitalism is probably the worst form of economics around, except for all the rest we've tried.

And that includes pretty much every single attempt by any government to command or control or dictate matters. It. Simply. Doesn't. Work.


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Comments (3)

The general principle is th... (Below threshold)

The general principle is that tax 'avoidance' is fine while tax 'evasion' isn't. To quote Learned Hand, "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

Unfortunately, at least when it comes to tax law, your statement "the law is the law" doesn't always hold up. An example is in the area of tax shelters, where deductions that follow the letter of the law are disallowed by the IRS if they deem the intent of the underlying transaction was done solely for the purpose of avoiding taxes and had no business purpose (The IRS ignores, of course, that minimizing taxes is a legitimate business objective). Where else but in the wonderful world of tax law is following the letter of the law not a defense?

I am a corporate accountant... (Below threshold)

I am a corporate accountant. The maxim regarding taxes is: "Tax evasion is illegal and unnacceptable. Tax avoidance is your fiduciary responsibility."

In all candor, I'm not conv... (Below threshold)

In all candor, I'm not convinced that my student understood the distinction between evasion and avoidance.

He did get an A on his paper -- but it wasn't about you. I had them write blog posts advancing both sides of any contentious issue -- he wrote about McCain's gas tax holiday, and my comment to him was this:

You have a knack for employing an arrogant and condescending persona that is a natural for blogging. It's grating, obnoxious, and superb.






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