Posts Tagged ‘tax avoidance’

To pay tax you don’t owe is just incompetence

October 2, 2016

I note that the NY Times is busy attacking Trump for offsetting tax on profits against past losses. Which of course is something the NY Times is itself very quick to do when it can. As Forbes reported in January this year:

New York Times Hypocrisy On Corporate Taxes Reaches Record High

……. More recently, for tax year 2014, The New York Times paid no taxes and got an income tax refund of $3.5 million even though they had a pre-tax profit of $29.9 million in 2014. In other words, their post-tax profit was higher than their pre-tax profit. The explanation in their 2014 annual report is, “The effective tax rate for 2014 was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.” If you don’t think it took fancy accountants and tax lawyers to make that happen, read the statement again. …….

There is much hypocrisy about taxes and tax-paying. To pay more tax than the tax code demands is all about incompetence – not about ethics.

I wrote in December 2015;

Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

…. As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

Back in January 2015 I was also exercised about the sanctimonious clap-trap that wealth inequality gives rise to:

Wealth inequality: The poor are not poor “because” the rich are rich

Most people on the left of the political divide want more to be taken from the rich to be “given” to the poor. The Robin Hood syndrome. Note that when the intention is to “give to the poor” and not for “making the poor greater creators of wealth”, the driving force is mainly envy. It is when the desire to deprive the rich is more important than any desire to improve the lot of the poor. Concern is over-ridden by envy. Sometimes it seems to me that the real difference between left and right is that the left wants to spread the consumption of existing wealth (and hope that total wealth increases), while the right want to focus on creating wealth (and hope that it trickles down and gets equitably distributed).

But there is a fundamental fallacy in the view that the poor are poor because the rich are rich. There may well be some of the rich who are exploiting some of the poor and where the poor are not getting a just opportunity to be creators of wealth. There may well be members of the rich who create no wealth but remain rich because of inherited wealth. But by far the greatest majority of the rich are rich because they created more wealth than others. The real question is whether each individual gets an equitable opportunity to create wealth and then gets to retain an equitable portion of the wealth he has created. (It is a different matter but I still do not understand why it is the creation and the retention of wealth that attracts more penalties in the form of taxation than the destruction or consumption of wealth).

I incline to the view that taxation as it is practiced today by most states is fundamentally immoral. It is in fact an act of confiscation. This I wrote in February 2015.

On the legitimacy and morality of taxation

I am persuaded that the concept of taxation as practised today is immoral. It is fundamentally a coercion of an individual by a larger (stronger) society. It is an enforced confiscation (by threat of legal action) of an individual’s property or wealth. It cannot be seen as a membership fee for being a member of the society because leaving (or being expelled from) the society is not an option. It is closer to the extortion of “protection money” than to the membership dues for a golf club. The use to which the funds are put is irrelevant. The key point is whether the payment is voluntary or coerced. When early Christians paid a “tithe” to the Church voluntarily it was not immoral. But when the payment was coerced and no longer voluntary, the system became immoral. Similarly Islam requires the payment of zakat on individual wealth over the minimum nisab and this also shifted from a quite unexceptionable and moral voluntary payment to become an obligatory and immoral coercive confiscation.

I don’t quarrel with the need for any society to generate “common funds” to improve the well being of that society. But the legitimacy of appropriating the funds lies only in that the society (state) is stronger than the individual. Might becomes right. I come to the conclusion that a tax code by which the amount a “good citizen”should contribute to society is calculated is quite moral as long as the payment is then voluntary. There would be no moral issue if all taxation was voluntary. The immorality lies in the use of threat or force to confiscate the payment. It is the oppression of the minority by the majority which is immoral. (I observe that all democracies use the very fact of being a “democracy” as being a justification for the oppression of minorities when that is the will of the majority. As if being in the majority – by and of itself – ensures proper behaviour). But, the good socialist will argue, compulsory payment of tax is necessary to ensure the funds for the common good. Without coercion society as a whole would suffer. The common good – as seen by the majority – is worth the oppression of the minority who do not pay their dues.

And so we come full circle. The end justifies the means. Oppression of the minority by a majority is acceptable for the good of the majority. A society must be able to use force and coercion against its own minorities for the greater good. Taxation is made legitimate only because the state is stronger than the individual.


 

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Tax avoidance is a measure of the incompetence of the lawmaker and the competence of the taxpayer

December 23, 2015

Taxation is fundamentally a confiscation of private assets for public purposes. It may well be necessary. Tax laws may be fair or unfair. Good citizenship – individual or corporate – then requires that prevailing rules of taxation law be followed, due amounts calculated and paid. Individuals and companies are required to cooperate in calculating the taxes they owe to their tax jurisdictions under existing rules and to pay such amounts in a timely manner.

I find it irritating when the lawmakers then criticise taxpayers for the deficiencies of the laws they have formulated. It has become popular for politicians to criticise large companies and wealthy individuals for “tax avoidance” (which is perfectly legal) as being cases of “not paying your fair share of tax”. It strikes me as a rather irrational – if populist – argument. Tax laws are not inherently, and of themselves, “fair”. In fact the question of “fairness” is not a criteria when it comes to paying or not paying tax. It comes into play only in the formulation of the enabling law. Once a tax law is passed, all legal entities within the jurisdiction are required to pay – whether or not it is “fair” in somebody’s opinion. Many tax laws are intentionally “unfair” to try and implement some policy or other, or to encourage some particular behaviour. When politicians start referring to the “spirit of the law” not being followed, it is just a confession of their own incompetence in formulating laws to implement their intentions.

As law-abiding individuals and companies, we calculate and pay our taxes according to the rules that prevail. We use all available rules of allowable deductions and off-sets and deferred taxes and tax-breaks to minimise the amount of personal assets that are to be confiscated by the State. We use accountants and experts to navigate the complexities and intricacies of tax legislation. No individual is ever expected to pay more than the prevailing rules require. Any individual who does pay more than required, and assuming his perfectly rational objective is to minimise the tax to be payed, is fundamentally incompetent. Any company which pays more tax than it should also demonstrates incompetence and is not demonstrating due care of its investors’ assets.

Individuals and corporations are not required or expected to pay more than what is due under the rules prevailing. The issue of ethics is in play when the rules are formulated and is also involved in the following of the rules. The act of payment is an ethical issue but minimisation of tax due is a matter of competence, not of ethics. Paying more taxes than are due demonstrates incompetence and gains no ethical credits. So when there is criticism of companies for “not paying enough tax”, the real failure is with the politicians who have made the deficient rules – not with the individuals or companies who have followed the prevailing rules to their own best advantage.

I would certainly not wish to invest in any company which was not sufficiently competent to keep its taxes to a minimum.

Tax evasion is illegal and demonstrates a lack of ethics with the taxpayer. Tax avoidance is a measure of the incompetence of lawmakers and of the competence of the taxpayer. I would go so far as to say that to pay more tax than is due is not just incompetent, but also unethical in being deficient in the due care of resources to be expected of any responsible entity.


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