Whats Wrong with Tax Avoidance
Therefore, whether tax avoidance strategies are ethical depends not only on an individual`s ethical basis, but also on their ability and willingness to influence others to do the same. Tax avoidance by “bending” the rules of the tax system is not illegal, but is considered by many to be more literal and unlegal. Countries legislate on how their taxes should be enforced; Companies are supposed to pay their legally owed taxes. This is an ethical issue because companies have a choice in how they interpret the law and therefore pay taxes. While it remains legal in everything it does, when a company charts its ethical line with respect to the interpretation of tax laws and the regulation of its affairs is subject to great discretion. This can extend to where he pays his taxes. A third perspective comes in the form of the so-called virtue-ethical foundation, associated with Aristotle and other Greek philosophers. This suggests that what is right elevates the virtues and efforts of the individual to moral excellence—defined by avoiding vice and striving to do good. In this way, ethical behavior is what allows the individual to achieve his most remarkable moral self.
In addition, tax compliance and tax evasion require special skills and knowledge. Those with complex businesses will need accountants and lawyers and may need to negotiate the full bill with HMRC. Even for most individuals, employers do their income tax calculations because the rules are complicated. In 2012, Ed Miliband said it was not “up to politicians to lecture people about morality”; He was right. Despite the moral beliefs of some politicians, society cannot agree on a moral standard for taxes. Many leaders call tax avoidance immoral, but what is morality? Morality characterizes behavior by measuring it against a generally accepted standard of behavior. The morality of society may differ from the moral ideals of an individual; I can consider avoidance immoral when society does not. To be practical, it must be possible to observe the morality of society without special skills or knowledge. Congress` combined efforts over the decades have resulted in a U.S. tax bill that is more than 2,600 pages long and far too complicated for anyone without an accounting degree. (The legend that the tax code contains 70,000 pages has been debunked.
This illustration depicts annotated versions of statutes that contain associated jurisprudence.) This is a direct consequence of Parliament`s intention to tax part of our activities, not their economic whole. Parliament intends to create tax legislation that facilitates tax avoidance. Pretending otherwise obscures the current political debate; It also gives parliamentarians an excuse to evade their constitutional duty to create a coherent tax law by pretending they have done their job. Our resulting tax legislation is inappropriate and makes the UK unattractive to foreign investors. I once created a complex avoidance structure for two foreign investors in English infrastructure because foreign regulation required a cosmetic change in their investment mechanisms. This triggered an anti-avoidance provision in English law, although the scheme of the transaction did not change. The time and cost of this avoidable restructuring has killed any appetite of these investors for new British investments. Finally, the lack of transparency within companies and any national tax system needs to be addressed.
Rich countries need to make the flow of capital from developing countries to them more transparent. At present, we expect the OECD to improve transparency. Instead, we should look to the United Nations, because the interests of developing countries are better represented there than in the OECD. Tax avoidance is the use of legal methods to minimize the amount of income tax owed by an individual or business. This is usually achieved by claiming as many deductions and credits as possible. This can also be achieved by prioritizing investments with tax benefits such as purchasing municipal bonds. Tax avoidance is not the same as tax evasion, which relies on illegal methods such as under-reporting of income and falsification of deductions. In the UK, the introduction of a General Anti-Abuse Rule (GAAR) is proposed to prevent tax regimes that the government considers “abusive” and that David Cameron has described as “morally wrong”. However, some argue that the new law should be a more comprehensive anti-tax avoidance rule, although this raises challenges as to what constitutes “appropriate” behaviour, is subjective and difficult to define, and creates too much uncertainty for businesses. Putting money in a 401(k) or withdrawing a charitable donation are perfectly legal ways to reduce a tax bill (tax avoidance) as long as you follow the rules. A person who takes an ethical perspective is likely to evaluate the tax avoidance strategies of one public leader – and those of others – with less scrutiny. As long as a person complies with tax laws and acts legally, tax avoidance strategies are likely to be considered ethical.
In contrast, a consequentialist is likely to evaluate tax avoidance strategies by also looking at how those taxes could have been used to benefit society – for example, by paying for schools and hospitals. When one person – be it Trump or anyone else – avoids taxes, it increases the costs incurred by everyone else, while reducing the benefits to society as a whole. However, the cost to society in the form of less funding for taxpayer-funded programs and services may be even higher if a wealthy person avoids taxes, as the fiscal responsibility is likely to be higher than that of people with modest incomes. As a result, consequentialists may well conclude that tax avoidance strategies are unethical. People who evade taxes not only cheat the government, they also rob their neighbours who respect tax laws and regulations. Cutting IRS spending, as policymakers have done in recent years, is wise and stupid. While it is unreasonable to expect to receive all taxes owed to the government, the IRS could do much more if it had the resources. Adequate funding for the IRS and a host of structural tax changes would help increase the collection of taxes owed and allay public fears that the system could be rigged in favor of the rich.
In his fiscal year 2020 budget, President Trump proposed $15 billion to expand tax law enforcement over ten years, which would translate into a direct increase in net revenues of $33 billion over the same period. The initiative could generate additional revenue by encouraging a higher level of voluntary compliance. Additional compliance measures in the fiscal year 2020 budget proposal include improving oversight of tax advisors, increasing the IRS`s powers to correct tax reporting errors, and strengthening information reporting. While the net savings from these proposals are a good start, they would close only a small fraction of the tax gap over the next decade. Other changes listed in a 2006 IRS report could reduce the tax gap even without structural changes in tax legislation. These include tightening reporting requirements, expanding the IRS`s access to reliable data, improving audit and collection powers, setting penalties at more appropriate levels, and improving the technology used by the IRS. The financial returns on these investments deserve careful consideration. Perhaps just as importantly, closing the tax gap would increase public confidence that the system is not rigged. So if tax avoidance is legal, what is it? To answer this question, we must first look at the topic from a broader perspective. A delay in the occurrence of your tax liability is not the same as a delay in paying taxes! It is very rare that you have the opportunity to delay the payment of the income tax you owe. It is possible to get an extension of tax payment if you can prove to the satisfaction of the IRS that you could not pay on time without undue hardship. However, this is not something you want to do unless it is absolutely necessary, because even if you can get the renewal, you owe interest on unpaid taxes, starting from the original due date.
When applied to individual tax avoidance strategies, each perspective offers a unique understanding of what is right. In short, most Americans practice tax avoidance. It is an important American industry. Philosophers have been discussing these ethical foundations for centuries and come up with three different perspectives that are worth examining in the context of tax avoidance strategies. Anyone who contributes to an employer-sponsored pension plan or invests in an Individual Retirement Account (IRA) engages in tax avoidance. You should prevent the “right” tax plan from being “wrong” by erroneous income forecasts. You should already forecast your income, income, and cash flow for general business planning purposes, so you should have plenty of this information available for tax planning. While estimates are inherently inaccurate, the more accurate you can be, the better your planning will be.