Tax Evasion Is Illegal, Tax Avoidance Is Not

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In any event, Congress long ago decided that corporations should pay taxes on their profits, before distributions are made to shareholders, and no Congress since has seen fit to rescind those laws. Instead, special interests have peppered the tax code with a zillion little dodges that allow something like 65% of all corporations to avoid paying any taxes at all. And their owners and stockholders also enjoy lots of loopholes through which they too avoid paying anything like the percentage of their income that the law specifies. When it’s said that only individuals pay taxes, it should be specified that only salaried individuals who lack access to these loopholes truly pay their fair share.

But most Americans don’t realize the extent to which the law is being evaded, because the corporate income tax continues on the books and most of us are gullible enough (as Paul Harvey correctly observed) to assume they are being collected – because it’s the law!  [emphasis added by Tom, not the author of the post]

This quote comes from another contributor to this blog (click here to read the post). He is replying to a previous post of mine in which I made the case that all taxes ultimately are paid by individuals (click here to read my post).

We must understand that tax avoidance is NOT tax evasion.  There is a world of difference between the two.  There is nothing wrong with tax avoidance.  In fact, I might argue that it is good fiscal management to pay as little tax as possible.  This applies to both business and individuals.  Also, contrary to Joe Biden’s comments during the recently concluded Presidential campaign, paying more in taxes does not mean we are more patriotic.  If it did, then why don’t people who believe that way send in more in taxes than they owe?  The government will not turn it down.

The author of the quote above seems to be implying that it is illegal, and unethical, for businesses to minimize the amount of taxes they (or you) pay.  I must vehemently disagree with this implication.  It is actually “good business” to keep costs as low as possible.  Since taxes are a cost of doing business they should be kept to the minimum for the benefit of the business and the stockholders.

The “little dodges” referred to by the author are legal deductions or generally accepted accounting practices.  We can agree or disagree with them but they are still legal.  Their origin may have been special interest groups (not all are) but the very same Congress that passes tax legislation debates and approves each of these “little dodges“.  As such, Congress is directly responsible for them.

Next, we must deal with the idea that only salaried people pay their fair share of taxes.  This is false.  It completely ignores the accumulated taxes, from every stage of the manufacturing process, that are built into the end consumers purchase price for every product bought.  Thus, it can be said that every consumer pays their fair share.  The difference is that it is not paid directly to the government, it is paid to businesses who collect and remit the taxes to the government.

On a side note, the income tax in not the best system of taxation.  A sales tax if a much better option.  There are many reasons for this.  For more information on a national sales tax and the removal of all income taxes see the Fair Tax website.

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2 Responses to “Tax Evasion Is Illegal, Tax Avoidance Is Not”

  1. l3rucewayne Says:

    It sounds to me like logandg should approve of the fair tax as it would eliminate most if not all tax “loopholes” and cause the wealthy and others to pay their fair share (assuming for the sake of argument that they aren’t already).

  2. The Morality of Paying Taxes…. « Unicoipolitics’s Weblog Says:

    […] I must respond to some points made by the author of this post.  His post is in response to my previous post which can be found here.  He said Regarding the distinction between evading a tax and avoiding a tax – I will concede a […]

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