Tax Analysts Blog

Immoral Tax Avoidance? No Such Thing.

Posted on Oct 22, 2010
Tim Fernholz recounts his thoughts on Google's now-famous tax avoidance:
    Seriously, though, after reading this article about Google's evasion of $3.1 billion in tax obligations through legal loopholes, I got into a Twitter argument with's Kevin Glass about whether this move is a violation of Google's famed "Don't be evil" mantra. Glass saw some virtue in Google's evasion, whereas I predictably thought Google should pay its fair tax burden.

Ultimately, Fernholz concludes that Google's tax scheming was hypocritical given the company's ostentatious and self-righteous claim to virtue.
    So is this action evil? If Google's definition of not being evil is 'doing more than the average corporation to support the public interest,' then sure it is. It's one thing to take advantage of legitimate tax law, but exploiting these loopholes for the sole purpose of paying less tax violates the spirit of the law, if not the letter. That would be fine if Google was content as a typical business, relentlessly pursuing profit with no thought to the public interest. They simply shouldn't pretend they're somehow better than the Exxons and Goldman Sachs of the world.

He's absolutely right. But hypocrisy really is the key issue. Not, as Fernholz suggests earlier, any notion of Google's "fair tax burden." Fair is a political concept, and when it comes to taxes, a hard one to pin down. After all, what's a fair average tax rate for Google to pay? The top marginal rate of 35 percent? Something less? How much less? Would it be fair if Google doubled its average tax rate from last year's 2.4 percent to 4.8 percent? What if the company tripled or quadrupled it? Where do we draw the line between "fair" and "unconscionable"?

Ultimately, I think the only real measure of a tax avoidance strategy is whether it's legal, not whether it's consistent with the "spirit" of the law, whatever that is. The whole notion of the law's "spirit" assumes that tax loopholes appeared in the law by accident. As opposed to being secreted there deliberately by well-paid lobbyists and their congressional allies. Often, the spirit of the law is tax avoidance, not tax payment.

My bottom line is this: Don't like corporate tax avoidance? Then get your representatives to close the loopholes. Don't believe that's possible (either because corporate tax lawyers are too smart or politicians too venal)? Then change the tax system. Because a tax system that depends on the willingness of taxpayers (corporate or individual) to willingly pay more than their minimum due is not a tax system for the real world. Taxpayers are never charitable with the government. Never have been, never will be.

As the famed jurist Learned Hand remarked in 1947: "There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands. Taxes are enforced exactions not voluntary contributions, to demand more in the name of morals is mere cant.”

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