The Taxman Always Thinks Twice

There are many ways to go about justifying tax avoidance.

I’ve already written here and here about my own justifications for trying to decrease my tax burden.

But this is such a ripe area for ethical exploration. So why not dig in a little deeper?

My gestalt is that people’s opinion on tax avoidance is very similar to people’s opinion on the miles game.

Some people just feel it is right and good, while others feel it is smarmy and wrong.

But I’d like to go beyond mere feelings and look at this issue more formally from a variety of angles.

An obvious place to start is to consider all of the possible justifications for seeking to pay less taxes that I have heard or can come up with on the fly.

(Feel free to add more justifications, to the ones mentioned here, in the comments section below.)
1. The Conscientious Objector.

“My tax dollars go to so many things that I don’t believe in, like American imperialism, corporate welfare for petrochemical companies, The nanny state, (insert boogie man here.) So by avoiding paying taxes I’m choosing not to support that which I don’t believe in.”

 
Positives: it cloaks tax avoidance behavior in a morally justifiable veneer.

Negatives: It strikes me as fundamentally dishonest. Unless you live alone on a mountaintop completely disconnected from the grid, you’re benefiting from government and taxation every single day. In addition, legal tax avoidance is not exactly an act of courage. It’s not like you’re refusing to pay taxes and going to jail for it.

Furthermore just because you don’t like something doesn’t mean it’s not justifiable.

And finally if you’re honest isn’t it true that the real reason you avoid taxes is simply to keep your own money?

2. The Charity Argument.
“The more money I keep, the more money I can give to charity. And my charity is more effective and less wasteful than government social programs.”

 
Positives: It establishes your bona fides as a good person who wants to help others. It’s not that you’re selfish, it’s just that you want your money to go further.

Negatives: The problem with charity is that it is voluntary. Because people have to pay taxes even when times are tough, social programs stay functional even during times of recession. Charities on the other hand suffer (And often fail to deliver services) during times of economic despair (When they are needed most.)

Besides I would suggest that we tend to overestimate our own efficiency and generosity.

And finally the charity argument could be used to justify any form of wealth gathering, be it drug dealing, embezzlement, or fraud.

3. The Fair Share Argument.
“I’ve been taxed higher than average for a long time, and I use less Government resources than average. Shouldn’t I be allowed to even the score a little bit now?”

 
Positives: this is a pretty solid argument on ethical grounds.

The ethical model here is a retributive one (an eye for an eye and a tooth for a tooth. Or you should only have to put in to society what you take out.)

Negatives: this is just not how society works. The whole point of civilization is to have the strong communal body protect weaker individuals by the pooling of resources.

Also, who died and made you judge of what is fair ? People always overestimate their own value and underestimate the value of others. People tend to be poor judges of themselves. (It allows us to sleep well at night.) Given this limitation, isn’t it better to have society as a whole judge what is right and wrong?

Furthermore this is an in effect argument against progressive taxation. The whole idea of progressive taxation is for the rich to pay a higher percentage of their income as taxes than the poor. Because,

A. They can more afford it.(I.e. taxes hurt them less.)
B. Money retained by the poor is more likely to be spent, and thus to stimulate the economy.
C. This form of taxation encourages a strong middle class as opposed to a polarized society with only the very rich and the very poor.

In other words unless you’re a fan of regressive-taxation-a-la-banana-republic, this is an argument that is very hard to defend.

4. The Realpolitik Argument.
“I, like everyone, do not enjoy paying taxes. However I realize that taxes are necessary tool for society to function.Furthermore I wish for society to be as fair as possible. Because of these views I support (and vote for) a simple, Progressive, System of taxation where money earned in any manner is simply classified as money earned. Also there should be no deductions for anything.But because of my desire to keep my money as an individual, I also consciously attempt to avoid taxes whenever legal and possible.”

 
Positives: it is simple and honest and it acknowledges the necessary distinction between thinking as an individual, and thinking as a citizen.

Negatives: it is hypocritical. If you believe in progressive taxation, and you avoid taxes altogether when you are rich, than this is the ultimate ethical inconsistency as an individual.

You can tell by the length of my quotation for the realpolitik argument, (and the brevity of my criticism) that this is, in fact, The argument that I use to justify my own philosophy and behavior.

This means that you will likely be better at critiquing it than I.

So fire away.

I can take it.

Sticks and stones and broken bones and all that good stuff…..

Another fun visual metaphor.  Courtesy of Miles Dividend MD.