This article first appeared at The McAlvany Intelligence Advisor on Monday, November 3, 2014:
Judge Learned Hand, circa 1910.
In his letter to the Washington Post on Saturday, libertarian economist Donald Boudreaux unwittingly exposed the logical fallacy behind the OECD’s (Organization for Economic Co-operation and Development) new “tax evasion” treaty: they really think they can help the little taxpayer by increasing the collection of taxes on the evaders. Wrote Boudreaux:
Consider the U.S.: in 31 of the 67 post-war years from 1946 to 2013, Uncle Sam’s budget deficit rose … when his tax receipts increased.
This fact means that Uncle Sam almost as often as not responds to each dollar of additional tax revenue by increasing his spending by more than a dollar – thus imposing a heavier tax burden on future taxpayers.
In other words, tax avoiders (not evaders) are performing a public service by doing what they can to reduce government revenues which constrain government spending. “This should,” wrote Boudreaux, “give serious pause to those who blithely assume that more revenue extracted from tax evaders will necessarily reduce the burden of taxes borne by non-evaders.”
Such a point of view was verboten in the communique from Berlin last Wednesday by finance ministers of Germany and France. Said Wolfgang Schaeuble, the new treaty is “a joint contribution to more transparency and fairness in our globalized 21st century,” while Brit George Osborne claimed the moral high ground:
Tax evasion is not just illegal, it is immoral. You are robbing from your fellow citizens and you should be treated like a common thief.
The hypocrisy is breathtaking. If the dictionary definitions of taxation and theft are accurate (Merriam-Webster defines theft as “the crime of taking the property … of another without [his] consent” while Investopedia defines taxation as “an involuntary fee levied on individuals that is enforced by a government”), then Schaeuble and Osborne are the looters and the thieves.
These high-level mulcters obviously haven’t read Second Circuit Court Judge Learned Hand’s conclusion in Gregory v. Helvering back in 1934 about the matter:
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.
Nor have they investigated the issues of “tax noncompliance” and “tax avoidance.” In each case, they are defined as “a range of activities that are unfavorable for a state’s tax system.” One is legal, the other illegal. But the governments of the 51 countries signing the new treaty in Berlin last week don’t care. If it deprives the state of income, it’s illegal. End of story.
That they have little sympathy for the guy who pays his taxes without trying to get cute with the tax man was obvious: if they really wanted to eliminate tax cheats they would recommend reducing income tax rates to zero. Then everyone would comply, as there would be no incentive to cheat. Everyone could keep everything they earned.
That’s all pie-in-the-sky, of course. Except that for 126 years that’s exactly how it worked in the American constitutional republic. The national government was constrained not only by the Constitution but also by its inability to raise revenues either through taxation of citizens’ incomes or by printing phony money through the Federal Reserve. It met its obligations under Article I, Section 8, through tariffs and excise taxes.
The new tax treaty has now committed those 51 countries to sharing income and tax data with everyone else, starting in 2017. Except that the European Union has already been collecting and exchanging interest income data ever since 2005 and the U.S.’s Foreign Account Tax Compliance Act (FATCA) has been forcing non-U.S. financial institutions to provide U.S. tax authorities with data on their accounts since 2010. That may explain why the U.S. didn’t join the 51 on Wednesday: it’s already collecting all the information it needs to track those immoral miscreants trying to keep what they’ve earned.
There’s another fiction underlying the fraud perpetrated last week: that government spending is good for everyone. This fiction was first exposed in the 19th century by none other than Fredric Bastiat:
Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.
Still another fiction was actually admitted by Schaeuble: the new treaty won’t end tax evasion. Said Germany’s most visible fraudster:
The risk of being found out becomes very high. But as long as people exist, they will not all obey the law. They’ll work out new ways to dodge taxes.
Of course they will. So, what’s the point? Since the lowly taxpayer won’t enjoy any benefit, and the rich will find ways around the new law, what is the purpose? To put it kindly, it’s partly to justify their high salaries and partly to promote the centralization of power in local, then regional and finally world governments.
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Sources:
Boudreaux’s letter to the Washington Post: Do Successful Tax Evaders Supply A Positive Externality?
The Washington Post: 51 countries sign deal in tax evasion crackdown
Reuters: UPDATE 2-Fifty-one countries sign OECD pact to tackle tax cheats
The Freeman: Confession of a Compliant Taxpayer
Definition of Tax noncompliance (evasion)
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