A full-throated defense of corporate tax dodging management

For all it’s failings, the criminal code has a pretty strong moral impetus behind it. It largely reads “these are bad things; don’t do them.” If the criminal code had a loophole that allowed you to kill a person because of a Twinkie, people would be rightly angry if you took advantage of it. The criminal code is consistent in saying that murdery things are bad, and you shouldn’t do them.

In complete, total, stark contrast, the tax code is amoral. Many taxes are not punishments for doing bad things (though some are). Good people pay certain types of taxes; bad people pay certain other types of taxes, but you can’t look at the code itself and decide who is good or bad. Bad people smoke, and we tax them. If they quit smoking, we get upset at the lost revenue, but we don’t call it tax evasion.

Mitt Romney and Hillary Clinton are both simply wrong with their intimations that good people are the ones who pay ordinary income taxes. If they were right, then having kids, getting educated, or getting health insurance or care would make you less good since they tend to reduce or possibly eliminate your tax bill. If donating to charity is good, then is working more hours bad? Don’t attempt to infer goodness from a tax return. It isn’t meant for that.

There are codes that are a mixture of morality and amorality. The rules of football communicate a general sense of “this is how the game ordinarily ought to be played”. If a team discovered a loophole by which they were allowed to use golf clubs to beat the other team during warmups as long as they did it while wearing cheerleader costumes, that would nevertheless be considered unsportsmanlike. The very fact that “unsportsmanlike” is a word suggests that there is a rule beyond the written rules.

At the same time, at least some of the rules of sports are meant to be exploited. “Dead ball” football plays are tricks, but they are not only legal play but fans celebrate the cleverness.

Fighting sports typically have weight limits, an attempt to make sure that a big fighter doesn’t walk into a class of small fighters and dominate purely because of her size. Athletes nevertheless subvert the spirit of those limits without breaking the technical rules by dehydrating themselves and using other extremely dubious methods.

In fighting, this isn’t considered cheating; it’s technique. Since these techniques are known to all, it actually works out because the smaller classes only have bigger fighters who have crashed their weights to qualify for that class. The fighters who would have ordinarily belonged in those classes go to even smaller ones by crashing their own weights.

The tax code is even more amoral than sports code. Donating to approved charity is a way to shed weight before weigh in the day before the fight. And everyone encourages you to do it.

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If we examine corporate tax code alone, it becomes impossible to decipher intent and morality. Deductions are plentiful, but capricious. It’s impossible to look behind the intent of a tax and determine whether it is intended to change the behavior of the company or to be a thing they are “supposed” to pay to show they are a good, patriotic company. Corporate tax code is an amoral rulebook, and it is the job of corporations to abide by those rules. It is not their job to decide whether it would be sportsmanlike to make some particular deduction. There is no such concept in corporate tax. GE cannot go into court and defend its tax bill with “well, this felt like the amount we should pay.” The only acceptable defense is “this is what the tax code says we should pay.”

If you don’t want companies to drop weight, you need to write rules preventing it. If you don’t want them to change the numbers on the scale, write that in. Outlaw jetpacks too while you’re at it. Allowing creativity is the same thing as encouraging creativity when there is no other moral guidance provided.

What you can’t do is rely on some sense of morality deduced from what taxes companies pay when those taxes are what the tax code says they should pay. There is no ‘fair and just” tax. It isn’t to make some media outlet happy.

There is nothing immoral with paying taxes to the UK rather than the US when the tax code allows that. There is nothing immoral with delaying the repatriation of overseas profits when the tax code allows that. There is no fair share of taxes that a company ought to pay. There is no calculable patriotic amount. There is only the legal amount.

Don’t heed me. Heed Aswath Damodaran:

At this point, if you are a US taxpayer, you are probably boiling with rage, ready to pick up your pitchforks and to attack unpatriotic companies. Vent as much you want, if it makes you feel better, but you have to decide whether you want a tax code that makes you feel good or one that actually works.

If you want companies to behave in different ways, don’t be a moralizing scold; change the rules.