Are Taxes a Moral Obligation?

Morality has been defined as "a system of conduct and ethics that is virtuous." It has also been described as being good or doing right. Because rights can not exist without a commensurate duty, morality could also be described as accepting a duty to satisfy the rights of others to "life, liberty and the pursuit of happiness". From a Judea/Christian perspective, it could be described as striving to satisfy the laws of the "Ten Commandments".

So in this context, is it immoral to avoid taxes by using loopholes within the law?

There is clearly an obligation of a voluntary citizen or resident of a country to either accept the duties imposed by that country or to find another country with duties that are more tolerable.

So one way to address the question of whether paying taxes is a moral obligation is to decide if there is a contract of sorts. Some people might call it a "social contract:". But a social contract implies that there is freedom to choose. However, the U.S. tax system does not offer a choice; which is in contrast to the tax systems of most other major countries.

Unlike most countries of the world, the U.S. imposes an income tax on its citizens or permanent residents regardless of where they reside or for how long. A person can become a U.S. citizen by the accident of birth and can be subject to the U.S. tax laws even if they reside outside the U.S. for most of their adult lifetimes.

If citizens or long term residents could simply move and thereby avoid the burden of U.S. taxes, there could be an implied social contract. So long as someone chooses to reside in the U.S. and so long as they are free to leave without penalty, there is an implied contract.

But since June, 2009 it is not possible for everyone to leave without having to pay some kind of "exit tax". This is a tax on what the tax law determines to be unrealized gains and deferred income. It's as if a citizen were required to sell every asset, compute any gain (or loss) and to compute the income tax on that gain. In addition to paying a tax on any assets as if they were sold at a gain, the person who wants to leave is required to pay taxes on any deferred income -- such as retirement savings accounts or section 529 education savings plans. (This commentary intentionally avoids delving into the arcane details of the exit tax.)

Admittedly, the exit tax does permit citizens or residents with a net worth of less than $2 million, who comply with some time consuming reporting requirements, to give up their citizenship or resident status without owing any exit tax. But the $2 million is not indexed for inflation and as time goes on, this limit will apply to more and more people who might prefer to leave.

And the often stated argument that the U.S. income tax system is voluntary is clearly "b.s." as every citizen and resident is aware. We are required by the law to file income tax returns and if we do not, there are increasingly harsh penalties for different degrees of non-compliance. In a few extreme cases where someone simply refuses to pay income taxes they can be incarcerated. If they resist with force, they could be severely injured or even killed by the authorities.

So there is little justification to argue that the income tax is a moral obligation arising from a social contract.

Instead, it is an extraction of the earnings of the citizens and residents that is enforced by any necessary means.

Also, a moral obligation implies that there is a clear and simple way to satisfy the duty -- usually by simply refraining from some conduct that is injurious to others. There is nothing simple or clear about the U.S. income tax. And it's not about refraining from causing harm to others. It's about causing harm to ourselves and our dependents without any real limit except for the terms of the law at any given point in time.

Thus, it comes down to the law.

We obey the law because there are always significant consequences for failing to do so. The income tax laws include a mind-boggling assortment of penalties for non-compliance and some of the penalties are out of all proportion to the failure to comply. So we pay the amount of taxes that the law requires in order to avoid painful sanctions.

And to the extent that the law permits or even encourages us to engage in politically favored behavior, we can often reduce our tax burden. We can get an $8,000 tax credit for buying a new home. We can get up to $250,000 of tax free gain from the sale of a home. The interest on state and municipal bonds is exempt from the federal income tax. Retirement savings are tax deferred. There are a huge assortment of tax incentives to produce or to purchase various energy saving products. Some expenditures are deductible. Others are not. The tax law is reputed to include nearly 3.5 million words, which would equal 10,000 pages of a normal sized letter. The IRS regulations are estimated to be about 3 to 4 times as long.

Complete compliance is virtually impossible even for the most co-operative taxpayers.

Those who argue that paying taxes is a moral duty never explain how much taxes are moral. Should we pay 10% of our income or 25% or 50% or more? How do we measure income? Should we ignore the legal tax incentives, deductions and credits in the law? Is is it immoral to deduct interest on a home mortgage or the fees paid for child support by a working parent?

There is no way to answer the question of how much is a "fair tax" or a moral tax. The only way to determine how much taxes we should pay is to look to the tax law. Our tax liability is determined based on our income and individual circumstances. Hardly any two citizens will ever pay exactly the same amount of income tax. If the law permits the use of a deduction, exclusion, credit or deferral, using it must be regarded as "moral" or at least legal. There is simply no way to determine how much we should each pay as part of the social contract without reference to the monstrous U.S. income tax law.

Vern Jacobs