Pay Your Taxes

Treasured Readers,

I was confronted with an interesting question last week, regarding the ethical status of paying taxes.  In general, following the law is considered to be a basic ethical requirement. Exceptions for unjust laws notwithstanding, we may obey the law to avoid sanctions, but might also be driven by a sense of fairness. If we understand the spirit of the law, we should abide by it as well.  So, on that basis, should we pay more taxes, if we are able to do so?

Nope.

Going beyond the letter of laws or regulations to honor their spirit is also often cited as an ethical principle. Indeed, the Caux Roundtable Principles for Business, descended from the venerable Minnesota Principles , state, in part, that a “responsible business …adheres to the spirit and intent behind the law, as well as the letter of the law, which requires conduct that goes beyond minimum legal obligations.”  

As an ethical principle, doing more than is minimally required by law makes sense in many instances. For example, we ought to make our workplaces safer than OSHA requires, and we ought to do less harm to the environment than statutes or regulations allow.  In the context of trusting business relationships, we don’t exploit every loophole or opportunity to gain further advantage relative to our partner. We may seek clarity of understanding, rather than clinging to a self-serving interpretation of a given contract term. Each of these examples represents a sound, ethical business practice.

Taxes are different. First, we would be hard-pressed to argue for a coherent “spirit” of the tax code. The code, as applied, results from an admixture of revenue objectives, economic forecasts, and especially policy- and politically-driven incentives. Enforcement is intended to be fair, driven by an accurate application of the code and not by any over-arching spirit or ideology.   Our obligation, therefore, is to follow the rules as we can best understand them. That standard promotes a playing field that is as level as the tax code allows, and assures that we are paying “our fair share.” In this case, fairness entails compliance with the same code that governs everyone else.

Further, if we choose to make additional contributions to the community, I would argue that there are many more efficient means of doing good than paying additional taxes.   The private sector is a tremendously powerful engine for social change, good and ill. If generosity might move a business leader to pay more than the tax code requires, then that spirit would be better expressed through gifts to many other agencies, private or public.

With respect to taxes, we can go ethically wrong in at least two ways. Most obviously, there’s a reason that tax evasion (rather than avoidance) is commonly called,”cheating.” It’s wrong. Even if you disagree with the government, or the way it collects or spends revenue. More interestingly, I argue that it is also an ethical mistake to become obsessed with reducing one’s tax burden, at the expense of more productive pursuits. It is true that a dollar saved through legitimate tax avoidance drops right to the bottom line. It is also true that the amount of energy and resource spent to save that dollar might be better allocated to projects that actually grow our businesses or otherwise enrich lives, ours or others. It is both prudent and ethically sound to keep taxes - along with other expenses – in proper perspective.

Another ethically honorable option, as a citizen and taxpayer, is to influence tax policy and enforcement. To do so, we need look no further than the J.J. Hill Library’s CFO, Anne Rasmussen, CPA, who was selected from among hundreds of qualified applicants to serve on the The Taxpayer Advocacy Panel (TAP).  TAP is an independent IRS agency whose 100 members across the country listen to taxpayer concerns and makes recommendations for improving IRS service. You can reach Anne and her colleagues through TAP: call 414-231-2360, or go to www.improveirs.org.  

Contacting TAP is much more effective than grousing to neighbors, friends, or co-workers.  It gives taxpayers a very a real opportunity to make a positive difference for all of us who are served by the IRS.  

TAP doesn’t work to solve individual tax problems. If you are facing economic hardships or are unable to resolve a federal tax problem, you may want to contact the Taxpayer Advocate Service (TAS), an independent IRS agency that assists individuals and businesses. In St. Paul call 651-312-8082.

So, pay your taxes, talk to TAP if you have recommendations for improving the IRS, and grouse to friends and neighbors about other stuff.

Thanks for reading.