The Morality of Tax Avoidance
Creighton Law Review, Vol. 43, No. 3, pp. 693-745, 2010
54 Pages Posted: 29 Jul 2010 Last revised: 8 Apr 2015
Date Written: 2010
If “tax avoidance” means “contriving legal transactions that reduce tax in ways that are contrary to legislative policy”, then “evasion” is illegal reduction and “mitigation” is unexceptionable reduction. Apparently, tax avoidance may occur endogenously, within the existing economic framework of a business or an estate plan, or exogenously, by resort to an independent tax shelter. The distinction is apparent, but not real. (a) Whether an arrangement amounts to avoidance and, if so, (b) whether the avoidance is moral are fundamentally the same questions in all contexts, including estate planning. Judges sometimes claim that tax avoidance is moral. That claim appears to be based on the distinction that avoidance is legal whereas evasion is illegal. A legal/illegal test cannot determine questions of morality. Others who aver that tax avoidance is moral base their claims on four assumptions: that taxpayers have a moral right to their pre-tax income; that avoidance is a victimless activity; that the immorality of evasion is derived solely from its illegality (and therefore that avoidance, which has the same factual matrix, is moral); and that morality is wholly independent of the law. These assumptions are mistaken. Evasion is immoral in a deep sense, not simply as malum prohibitum. Since evasion and avoidance share their essential elements, and are separated only by a legal difference, it follows that avoidance is also immoral. Public opinion can test this conclusion, albeit imperfectly. The approach is deontological, focusing on actions, not on agents, and comparative, drawing on cases from several jurisdictions.
Keywords: Income Tax Law, Tax Shelters, Anti-Avoidance, Morality, Estate Planning, malum in se, Tax Evasion, Tax Avoidance, Ethics, Duke of Westminster, Learned Hand
JEL Classification: K34
Suggested Citation: Suggested Citation