THE GREAT ESCAPE

“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."

The above quotation is a familiar one emanating from the late Judge Learned Hand of the U.S. Federal Court. I first lighted on Judge Hand at a time when I didn't know what a federal judge was and what he was doing in Life Magazine, but it seemed to be over something he'd said about the spirit of liberty being the spirit that was not too sure that it was right. This appealed to progressive types and got him into the media where he remained until his death. The taxation quote became his next most famous statement and squared him with conservatives, who had previously been suspicious of him.

The quotation of course is a defense of tax avoidance which is music to the ears of all who practice it. As it indicates, this takes in just about our whole population. All the same, some of them have guilty feelings about it. That's because they are confused about the difference between tax avoidance and tax evasion. The first is legitimate, the second is not. People practicing Number One claim all the deductions they can find. People practicing Number Two invent deductions, The concept is common enough and applies to innumerable situations. When you go out of your way to avoid a red light, you're avoiding. When you blast through the light you're evading.

The whole matter takes up about twelve pages in Wikipedia, the online encyclopedia, which explains it at length, always coming down on the side of Judge Hand, which is also the side of John Q. Public. Still there are holdouts. One of them is the inspirer of this piece, a Professor Greenwood at Hofstra University, who uses space in Newsday to find the Alternative Minimum Income Tax to be an example of tax evasion that has subtly been slipped into the Code by reactionaries trying to penalize States that impose high taxes for socially desirable projects. This gets a little convoluted, which I'll try to deal with later.

In the meantime I want first to discuss Professor Greenwood's smear tactics of trying to conflate avoidance and evasion so as to make them equivalent no matter what Judge Hand, Wikipedia, tax experts and millions of ordinary Americans think. He begins by claiming AMT was devised to "catch" rich tax evaders. But these were people who took deductions to which they were entitled. How does that make them evaders? They weren't, in the eyes of Judge Hand or anyone else except the Professor. Or did he really know the difference but thought he could get away with a general smear of people who didn't pay as much tax as he alone thought they should?

I conclude that he knew what he was doing because he insisted on repeating his misleading accusation in a subsequent paragraph. He was driving home his point that AMT was aimed at tax evasion by the rich. Quite a few of the Congresspeople who voted for it thought this way, but a lot of others knew better but also knew that the public was easily misled by demagogues who painted all business tax deductions as "shelters" and was receptive to the idea of penalizing their users by enacting a nominal tax on them for their audacity. This was the AMT -- if you had exotic deductions such as stock market losses and they reduced your regular tax, you paid AMT to make up for that sin. A little incense burned on the altar of Envy.

According to the professor, AMT was perverted from its original purpose of mulcting the "rich" by adding local tax deductions and personal exemptions as income, not outgo, items for AMT purposes. He doesn't mention that in 1982, when this took place, the Democrats were in control of Congress and continued to be until 1994 and never objected to these things. At some point in the '80's there was a proposal to eliminate state tax deductions altogether, but it went nowhere, so it wasn't as if the professor's party was just oblivious to things, only that they disagreed with him.

He continues to believe, though, that using state tax and personal exemptions as qualifiers for charging folks an income tax premium like AMT was an insidious move meant to penalize those virtuous states which impose lots of these taxes for progressive ends. As indicated, he gets no support for this view and he also gets none for his claim that to use personal exemptions as AMT qualifiers is also an imposition on the middle class, since children certainly aren't intended as tax shelters. That may be, but the Tax Court ruled against a family of ten who appealed on this. The Court was upheld on appeal, where it was found that Congress intended no discrimination with this addition to the Tax Code. Could it have been the ZPG (Zero Population Growth) people who were behind it? They're all Democrats, I believe.

The prof has some other stretchers sprinkled in his dissertation , among them one to the effect that “middle-class people don’t have tax shelters.” Why does he think so many of own houses, with mortgages? Another claim is that “the AMT as perverted by Reaganites demands that people pay tax on income never received, i.e., state taxes. At the same time he admits that maybe it was received, but then paid out to the state. What about it? He’s trying to find a dichotomy between the original AMT and the additions to it, but non-receipt isn’t one. Plenty of money never received was subject to the tax before 1982. This included depreciation, net operating losses, intangible drilling costs, etc., etc. Tax shelters became like air raid shelters; they got bombed.