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Is exploiting tax loopholes really unethical?

Some would argue that the government is the biggest waste of money there is. I'm not saying that's my belief, but let's entertain that thought for a minute. If you believe that the government wastes most, say 95%, of its money on stupid things that should never receive a dollar from anyone (like the war in Iraq, to pick a random one), and you believe that you personally can do more with that money in terms of "making the world a better place", then it follows that paying as little tax as possible is the ethical choice.

Let's take an example: Bill Gates. Bill Gates is currently the second richest man on earth, according to http://en.wikipedia.org/wiki/Forbes_list_of_billionaires . Did he use all those tax schemes on his way there? You bet your bottom dollar he did. Now he's using this money directly to solve problems like curing Africa of Malaria. Do you think he's using that money more efficiently than a government programme would? I'd bet on that too.

Would the world be better off if the US government had $20b more and Bill Gates had $20b less? I don't think so. I think Bill Gates can use the money much more intelligently than the US government ever could.

So, is it unethical to pour less money into the pointless furnace of wasteful government?

I'm not saying this point of view is the only point of view out there. But to declare tax avoidance outright "unethical" is a failure in perspective.

Fabulous argument for benevolent dictatorships.

It's unethical because we're all on the hook for the money the government spends. That's the social contract. If you think the war in Iraq was a big waste of money (as I do), then great, lobby against that. But once the decision's made, we're all on the hook for the money and wiggling out is akin to welching on a bet or defaulting on a loan when you have the money to pay.

Funnily enough, most of the people who complain about "wasteful government spending" were the the loudest advocates of the Iraq war and the expanded modern security state. It turns out everything became way more wasteful and tyrannical on a single day in January 2009.

There is nothing unethical about following laws as they are written. The thing to lobby against is the absurd tax code we have in the US. If the tax code wasn't 16k pages we wouldn't have this "problem." You could put all the information needed on 1 page, and we wouldn't have to read these stories in the news anymore.

Nothing unethical about following laws as they are written? That's a silly absolute. What about the nuremberg trials?

There's all sorts of unethical things you can do legally, and if you have a bunch of lobbyists working to change the law in your favor, there's even more.

That's a pretty big stretch of what I was talking about going from taking a deduction to murdering people. Would you feel better if I said there is nothing unethical about following our current tax laws? As it is the rich pay far more in taxes than what they make relative to the total so I have no problems with them working to minimize their tax bill just as I do. They simply have more resources with which to minimize their bill. They still pay far far more in taxes.

Warren Buffett and his secretary would like a word with you.

My income has FICA and Medicare taken out of about 90% of the total, those taxes are capped. If I made more, I'd be paying less as a % of income for entitlements. My income is taxed at the personal income rate as opposed to the silly-low capital gains rate.

Our tax code taxes the poor almost nothing, and the rich at a smaller % of their incomes than the middle class. So the middle class is paying a huge % of the tax burden, relative to their incomes. Then someone goes "Hey, look, the poor pay almost nothing!" and people get mad about the injustice.

The facts would like a word with you - http://www.heritage.org/federalbudget/top10-percent-income-e...

The rich do not get taxed at a smaller % of their incomes than the middle class. Tell your good friend Mr. Buffett he is welcome to send a big check to the treasury. They will accept it.

Ethics and legality are not the same thing. For example, it is legal for judges to hit up parties before their court for campaign donations. However, it is not ethical for them to do so.

They will change the government, but will it be particularly effective use of our time?

It's like voting for two lizards, one of which is the lesser evil. We change the outcome by voting for the lesser evil and trying to convince everyone that this lizard is the right choice. Of course, we didn't really do shit. The system remain unchanged and the evil lizards are still in control.

The problem of politics is not any one particular problem or any one particular candidate, but that the whole decision-making process is rotten.

Unfortunately you've missed the point of why it is unethical, everyone else has to pay more to support your avoidance instead.

If they paid their way then the overall tax rate would be lower for everyone, instead of just for the rich. The irony being they're the ones who need it the least.

So effectively Bill Gates made the decision to make everyone else pay more tax so that he could go and cure Malaria in Africa. Causing babies to die in America instead. His tax avoidance can be indirectly linked to other people's deaths. That wasn't his decision to make and was unethical.

It's stealing but in a weird way. And by people who don't actually need to steal but just do it because they can.

> If they paid their way then the overall tax rate would be lower for everyone, instead of just for the rich.

That is the truth in theory. In practice, the US federal government these days borrows 30% of the money it spends; the percentage has been growing through the years.

If they paid their fair share of taxes, then either (a) the government would borrow less -- or, more likely (b) the government would spend more (and the population in general you may or may not be the beneficiary).

The "if you pay less taxes I pay more taxes" only works in a closed system. IIRC, the last time the US wasn't, at the end of the day, a pure borrower is in the '70s.

edit: fixed 50% to 30%. There's an underlying philosophical discussion, but I'll just use the official government number.

Uh? What law says you have to pay more because some people legally avoid taxes?

The rich not only pay far more in taxes by virtue of making more, they also pay more in relation to how much they make. The top 1% earns 17% of the income, and pays 37% of the taxes.[1] It's complete BS to say that Bill Gates following the tax code is unethical.

[1]http://www.heritage.org/federalbudget/top10-percent-income-e...

In practice, all that happens if there are more taxes paid is that the government spends more money. Do you really think you would pay less tax if the government received a $100b windfall? Of course not.

The way the government can cut its debt is by cutting its spending - the biggest slice of which is the military.

> "Would the world be better off if the US government had $20b more and Bill Gates had $20b less?"

It's not about what Gates personally gives or what Buffet might personally write a check for, if he feels he isn't paying enough. The discussion is about the hundreds of billions in aggregate that corporations and the wealthy are not paying.

And we certainly aren't seeing hundreds of billions in Gates-style charity from corporations and the other super-wealthy.

Consider also that Gates fabulous charity is still small compared to the aggregate donation of Americans. His charity is notable only for having come from a single person and for his ability to therefore set priorities directly. It's not remotely clear that aggregated wealth, even if it were to always result in Gates'-style donations, results in more net charity than if it were taxed, spent and thus diffused back into the economy where the rest of America might earn it and donate to charity in smaller individual amounts.

Government tax revenue, after all, does not get destroyed. It gets spent. Perhaps inefficiently, but spent nonetheless. And say what you will about cronyism, you'd quickly find yourself in the rhetorical weeds if you tried to argue that wealth generated off government inefficiency or misdirected priority is somehow tainted and thus can't be expected to produce charity from those who make their living from it. Not when a cursory glance over government revenue flows creates a list of the largest US government contractors and vendors that looks almost exactly like the list of corporations and wealthy individuals we're trying to excuse for their charity.

(Edit: cleaned up some phrasing)

Suppose 95% of what the Bill Gates foundation does is pure waste, should we raise taxes so his money is better spent?

If you assume your correct you can make anything sound reasonable. However, despite popular opinion the US government is reasonable efficient given it's size, it's the goals that are poorly thought out not it's methods. If you want to suggest otherwise you need to compare total income with total output and compare with more than just one rich dude while ignoring people who buy 80+ million dollar Yacht's and rarely use them.

> the US government is reasonable efficient given it's size,

Do you have a reference for that? Genuinely interested.

I've dealt only with a small part of the US and State government, and all of those were horrendously inefficient (e.g., refusing electronic filing of documents; turns out that I type it in on my computer, print it onto the pre-made form, send it by regular mail; someone at the other end manually types it all in. That happens with quite a few US government forms).

The US government does a lot of different things most of which hard hard to compare with equivalent private sector work. Still, Social Security and Medicare are huge and have reasonable private sector comparisons.

Social Security Administration overhead ~1% http://www.ssa.gov/oact/STATS/admin.html Compared to 401k http://www.perfectswindle.com/?p=109 vs ~20% of 401k payouts go to administrative overhead.

Medicare vs. Private insurance http://voices.washingtonpost.com/ezra-klein/2009/07/administ...

PS: You can argue that SS should include IRS overhead, but you need to reach into a lot of other government programs or argue they should run 401k style programs to close that gap. Medicare pays less in overhead and less for the actual procedures there is some arguments in relation to work done, but they are are not obviously worse.

> Social Security Administration overhead ~1% http://www.ssa.gov/oact/STATS/admin.html Compared to 401k http://www.perfectswindle.com/?p=109 vs ~20% of 401k payouts go to administrative overhead.

Thanks. I don't agree it is a valid comparison (SSA puts all money in t-notes, 401k actually has (mostly useless, but non-zero cost) management) - but 1% is, in fact, efficient overhead in absolute terms. I'm impressed.

> Medicare vs. Private insurance http://voices.washingtonpost.com/ezra-klein/2009/07/administ....

> PS: Medicare pays less in overhead and less for the actual procedure.

Medicare decides how much they pay for most procedures, and the providers cannot refuse (and instead roll the cost onto less leveraged customers), so I'm not sure how can use that as a basis of comparison.

I can't find it now, but I recall a comparison to other systems (UK's NHS and other single payer systems) found that medicare was overall much less efficient (which is again, unfair - the NHS doesn't have to deal with private for-profit hospitals, medicare does).

I think the fact is that we are in debt so far that we can barely afford to pay the interest payments. Now, there are two ways out of it. We can pay our debts, or we can dissolve the government, in which case, our debtors will hold the american people (and not the government) responsible. If you want to see what mountains of debt will do to a country, just look at Haiti. http://en.wikipedia.org/wiki/External_debt_of_Haiti

Apple, Microsoft, and Google should pay their fair share. Unless I can claim all my income in Ireland, and store all my cash in Barbados, they shouldn't be able to do it either.

The article's gist is that there is the "right"* thing to do and the pragmatic thing, something I've seen discussed on HN before [1]. The pragmatic thing is recognising that there's juicier fruit on lower branches, i.e. personal income and consumption, in terms of cost of securing the tax income and risk of adverse effects/the taxee wiggling out.

*I believe value destruction is unethical, sourcing my sense of ethics from the perspective of global long-run production. A company moving assets from the inefficient US government to its private, profitable book is thus good to me. This isn't to start a philosophical flame war on this but to point out that you can't assume this behaviour automatically falls into the "legal, but shitty" area for everyone.

[1] http://www.marco.org/2012/02/25/right-vs-pragmatic

I don't understand why you'd trust a corporation more than Congress when it comes to how the tax code should work. If we all pay what we think we should owe, rather than what the rules tell us we actually owe, that would lead to chaos.

"If we all behaved the way corporations do" doesn't really mean anything. Corporations are people. It would be much more accurate to say "If all people behaved like the people who work at Apple, the world would be a worse place," but I don't think that's defensible at all.

If it does become a social norm to obey the law you wish Congress passed, instead of the law they actually passed, you're subsidizing people who ignore this norm. I wouldn't want to live in a world where RIMM out-competes Apple because Apple scrupulously follows good, imaginary rules, and RIMM scrupulously follows actual rules instead. This would all be a lot less meaningful if the US had lower corporate tax rates, but ours are effectively the highest in the world. Since the corporate tax rate is also the subsidy for hiding a given amount of income, it's no wonder that we lead the world in tax avoidance, too.

I'm not sure you're right to single out corporations here. It seems like all the Real People I know who are aware of simple things they could do to pay less in taxes end up doing them as well.

Difference being that Real People can't spend 10 million setting up foreign subsidiaries in order to avoid taxation on a billion in income. Different math comes into play when you can fill an office building with lawyers for your tax policy.

On the other hand, they can much more easily pass under the radar.

But then you're talking fraud and running a big risk.

No, but I know plenty who pay H&R block to help them find all the deductions they're eligible for. This doesn't come out to 10 million, but the income they're sheltering. Its true that large corporations benefit from economies of scale when they try to avoid paying any more taxes than they have to, but I don't see any moral difference between what they're doing and what everyone else does.

and, in addition to what jbooth wrote above - these corporations lobby for the laws to be changed in their favor. How many Real People do you know who have done that?

And is setting up 4 related corporations in 3 different international jurisdiction a "simple" thing?

Individuals rarely do lobbying on their own, but I often see groups of farmers, homeowners, small business owners, or whatever forming groups to lobby congress for their own benefit. They're solving a harder coordination problem to do so, but it doesn't seem that different.

Likewise, when a person devotes some small fraction of their resources to tax avoidance and a corporation devotes the same fraction, the corporation's results are going to be much more impressive and complex than the persons. But I'm not sure that's a reason to condemn the one and not the other.

> I often see groups of farmers, homeowners, small business owners, or whatever forming groups to lobby congress for their own benefit.

And how successful are they, compared to corporations? The problem is that by lobbying clout making a difference, corporations are thousands of times more effective than the number of people they represent.

(And it's usually an accepted deduction for them, unlike most other groups)

> Likewise, when a person devotes some small fraction of their resources to tax avoidance and a corporation devotes the same fraction, the corporation's results are going to be much more impressive and complex than the persons. But I'm not sure that's a reason to condemn the one and not the other.

The answer you're going to get as a person if you do that (especially if you get creative with multinational tricks) is "I'm not sure I'll be able to defend that in court. And if I can't, you're going to jail". However, if you do it as a corporation, the worst you'd do is to pay back taxes (perhaps with some small penalty). Sarbanes Oxley theoretically makes the CEO personally liable, but I haven't heard of a case where one was prosecuted that wasn't downright fraud.

Do you know of any case in which a corporate executive faced personal liability for creative tax planning? I do know cases where persons creatively planning their own taxes faced such liability. And I think that makes it good enough reason to single out one and not the other.

That's full of crap. What they'll respond to is changing the law!

They're just following the law. Beg off the companies, and change it.

It really isn't that clear. A lot of people regard taxes as unethical.