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Judge Learned Hand: "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 tr

Judge Learned Hand: "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."

sumeetjain 16y ago
Doesn't this just beg the question of letter vs. spirit of the law?
megablast 16y ago
They are only avoiding some california taxes as well, at least according to the wiki page. This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.
- dcurtis 16y ago
  Ikea is so good at not paying taxes that I would say the whole company is a tax evasion hack. The number of subsidiaries in random countries and crazy charities that make up the company is astounding. See: http://en.wikipedia.org/wiki/IKEA#Corporate_structure http://en.wikipedia.org/wiki/IKEA#Corporate_structure
  - smallblacksun 16y ago
    Sounds like a money-laundering setup, honestly.
btmorex 16y ago
That may be true, but the simple fact is that it's a lot easier for a large corporation to minimize its taxes than it is for a small business or individual. For example, a company like apple can afford to pay 10 people full time to move around money and assets in order to minimize taxes. Those people will save Apple far more than it costs to employ them. A 5 person company not only can't match that effort, but if they tried they would find that the necessary expertise cost more than the actual tax savings would bring. That gives large corporations a pretty significant advantage in the marketplace.
- jack7890 16y ago
  Couldn't the differential tax rates for big corporations vs. individuals account for this? An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.
- JabavuAdams 16y ago
  Your example is just an economy of scale. The same could be said of engineering support infrastructure.
  - jbooth 16y ago
    The difference being the tax situation is created by laws, and engineering is governed by reality. The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.
    - dedward 16y ago
      You mean smaller businesses that create fewer jobs?
      - jbooth 16y ago
        No, I mean the small businesses that have created almost all of the new jobs over the last 20 years. A few here and a few there. Some of them got really big. Go check out bls.gov.
        zamfi 16y ago
        Can you give a more specific link to the bureau of labor statistics? Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html http://www.census.gov/epcd/www/smallbus.html The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%. Are we looking at different things?
mturmon 16y ago
http://en.wikipedia.org/wiki/Race_to_the_bottom http://en.wikipedia.org/wiki/Race_to_the_bottom
- mturmon 16y ago
  Why the downvotes? The linked page points to the judicial concept of the "Race to the Bottom" in which countries/states/counties competitively weaken their laws to attract investment.
adolph 16y ago
I suppose that if they are working hard at arranging it, that's better than avoiding taxes and then blaming things on TurboTax.
barrkel 16y ago
Yes, but in practice, this means that the middle classes pay most of the tax, since the poor don't earn enough, while the rich are able to afford different wealth structures that e.g. fall under capital appreciation, or are structured around shares of ownership and operated in a different state or country for tax reasons, etc. In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.
- ryanwaggoner 16y ago
  Not true, the top 5% of earners in the US pay more than 50% of the taxes, and the top 10% pay almost 3/4ths of the taxes. http://en.wikipedia.org/wiki/Taxation_in_the_United_States#Tax_distribution http://en.wikipedia.org/wiki/Taxation_in_the_United_States#T...
  - jbooth 16y ago
    Yeah, but they make more than 50% and more than 3/4 of the income, respectively. Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower. It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.
    - dedward 16y ago
      Taking a wealthy friend as an example, and watching how many jobs he's created, how many charities he's created, and how many lives he's changed - plus the sheer raw numbers of dollars he paid in taxes on top of all that - I don't really care if the percentage is less than mine. I didn't create 500 jobs or donate hundreds of thousands of dollars to real-life charities every year. EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.
zmmmmm 16y ago
That's interesting. I know little of US tax laws but in my country if an arrangement has no legitimate purpose other than to minimize tax then it can be seen as tax evasion and the tax department can choose to tax under an alternative regime that they decide matches its "true" nature. Similar to how if you claim to be a contractor but you do all your work for one company they can decide to treat you as an employee. Of course, it is fairly easy to work around, so this does not have a lot of teeth, but it still weeds out the most egregious tax avoidance schemes.
- URSpider94 16y ago
  That's generally true in the USA, but the catch here is that the states are sovereign entities. Different states have different tax structures, in part to attract residents, business and investment.
hackinthebochs 16y ago
Isn't it so easy to outsource your moral thinking to others. You can justify almost anything that way!

sumeetjain 16y ago

Doesn't this just beg the question of letter vs. spirit of the law?

megablast 16y ago

They are only avoiding some california taxes as well, at least according to the wiki page. This is nowhere near as bad as IKEA, which is the largest charitable organisation in the world, pulling in billions of dollars a year, and paying out a million to help design new furniture.

dcurtis 16y ago
Ikea is so good at not paying taxes that I would say the whole company is a tax evasion hack. The number of subsidiaries in random countries and crazy charities that make up the company is astounding. See: http://en.wikipedia.org/wiki/IKEA#Corporate_structure http://en.wikipedia.org/wiki/IKEA#Corporate_structure
- smallblacksun 16y ago
  Sounds like a money-laundering setup, honestly.

btmorex 16y ago

That may be true, but the simple fact is that it's a lot easier for a large corporation to minimize its taxes than it is for a small business or individual. For example, a company like apple can afford to pay 10 people full time to move around money and assets in order to minimize taxes. Those people will save Apple far more than it costs to employ them. A 5 person company not only can't match that effort, but if they tried they would find that the necessary expertise cost more than the actual tax savings would bring. That gives large corporations a pretty significant advantage in the marketplace.

jack7890 16y ago
Couldn't the differential tax rates for big corporations vs. individuals account for this? An example with invented numbers: if the US Govt wants to tax corporations at 30% and individuals at 25%, but corporations are 10% better at avoiding taxes, than the actual corporate tax would be 33.33%.
JabavuAdams 16y ago
Your example is just an economy of scale. The same could be said of engineering support infrastructure.
- jbooth 16y ago
  The difference being the tax situation is created by laws, and engineering is governed by reality. The laws shouldn't create a situation where big, slow-moving corporations get huge built-in advantages over smaller, more innovative companies (I know apple is more innovative than many big companies but stay with me here). Particularly, they shouldn't be getting those advantages by paying a bunch of blood-sucking lawyers and accountants to move money around and create nothing. The law should, if anything, be providing support for smaller businesses.
  - dedward 16y ago
    You mean smaller businesses that create fewer jobs?
    - jbooth 16y ago
      No, I mean the small businesses that have created almost all of the new jobs over the last 20 years. A few here and a few there. Some of them got really big. Go check out bls.gov.
      - zamfi 16y ago
        Can you give a more specific link to the bureau of labor statistics? Assuming you're using the typical "500 employees" definition of small business, US census data doesn't seem to bear you out. For the period 1988 to 2003, see table 2c here: http://www.census.gov/epcd/www/smallbus.html http://www.census.gov/epcd/www/smallbus.html The percentage of paid employees employed by organizations with 500+ employees increased in the period 1988 to 2004, to 49.1% - as the total number of employees has increased by 30%. Are we looking at different things?

mturmon 16y ago

http://en.wikipedia.org/wiki/Race_to_the_bottom http://en.wikipedia.org/wiki/Race_to_the_bottom

mturmon 16y ago
Why the downvotes? The linked page points to the judicial concept of the "Race to the Bottom" in which countries/states/counties competitively weaken their laws to attract investment.

adolph 16y ago

I suppose that if they are working hard at arranging it, that's better than avoiding taxes and then blaming things on TurboTax.

barrkel 16y ago

Yes, but in practice, this means that the middle classes pay most of the tax, since the poor don't earn enough, while the rich are able to afford different wealth structures that e.g. fall under capital appreciation, or are structured around shares of ownership and operated in a different state or country for tax reasons, etc. In other words, the burden of funding of the state - the security, infrastructure and social consensus which is the foundation of all citizens' wealth - proportionately falls least on those that benefit from it most.

ryanwaggoner 16y ago
Not true, the top 5% of earners in the US pay more than 50% of the taxes, and the top 10% pay almost 3/4ths of the taxes. http://en.wikipedia.org/wiki/Taxation_in_the_United_States#Tax_distribution http://en.wikipedia.org/wiki/Taxation_in_the_United_States#T...
- jbooth 16y ago
  Yeah, but they make more than 50% and more than 3/4 of the income, respectively. Richer people pay lower taxes as a percentage of their income than the middle class. Much lower. It'd be lower even if they did it all by the book and didn't hire expensive accountants and use offshore accounts, tax havens and all of that. Once you add that stuff in it's significantly lower. It's a bug, not a feature. Meanwhile, presumably you're not a multi-millionaire, and you're actually cheering for them to pay less off their income in taxes than you do. Pretty funny stuff.
  - dedward 16y ago
    Taking a wealthy friend as an example, and watching how many jobs he's created, how many charities he's created, and how many lives he's changed - plus the sheer raw numbers of dollars he paid in taxes on top of all that - I don't really care if the percentage is less than mine. I didn't create 500 jobs or donate hundreds of thousands of dollars to real-life charities every year. EDIT: That doesn't mean I think the system is perfect or that people don't cheat, or that the wealthy are somehow innocent - money is power, and those with more money will exert more influence on how to keep more of it - that's natural.

zmmmmm 16y ago

That's interesting. I know little of US tax laws but in my country if an arrangement has no legitimate purpose other than to minimize tax then it can be seen as tax evasion and the tax department can choose to tax under an alternative regime that they decide matches its "true" nature. Similar to how if you claim to be a contractor but you do all your work for one company they can decide to treat you as an employee. Of course, it is fairly easy to work around, so this does not have a lot of teeth, but it still weeds out the most egregious tax avoidance schemes.

URSpider94 16y ago
That's generally true in the USA, but the catch here is that the states are sovereign entities. Different states have different tax structures, in part to attract residents, business and investment.

hackinthebochs 16y ago

Isn't it so easy to outsource your moral thinking to others. You can justify almost anything that way!