Evening star., 1937-06-02

The legal
right of taxpayer to decrease the
amount of what otherwise would be
the amount of his taxes, or altogether
avoid them, by means which the law
permits, cannot be doubted.
Justice Holmes Statement.
Even the great liberal. Justice Oliver
Wendell Holmes, said in delivering an
opinion on behalf Of the Supreme
Court of the United States:
I'VE do not speak of evasion, be-
cause, when the law draws line. a
case is on one side Of it or the other
and if on the safe side, it is none the
worse legally that party has availed
himself to the full of what the law
permits.
When an act is condemned as an
evasion, what is meant is that it is
on the wrong side of the line indi-
Gated by the policy if not by the mere
letter of the law
Thus evasion is a criminal affair,
While avoidance is proper legal de-
vice. Judge Learned Hand of the
Circuit Court of Appeals recently in
case used this interesting language
on the same point:
I'VE agree with the Board of Tax
Appeals and the taxpayer that trans
action, otherwise within an exception
of the tax law, docs not lose its i'm
munity because it is actuated by
desire to avoid, or, If one choose to
evade taxation. Any one may SO ar
range his affairs that his taxes shall
be as low as possible: he is not bound
to choose that pattern which will best
pay the Treasury; there is not even
a patriotic duty to increase ones
taxes"
Supreme Court Ruling.
In another instance (U. S. vs..
1sham) the Supreme Court of the
United States ruled:
while his (the taxpayer's) opera
tions deprive the Government OF the
duties it might reasonably expect to
receive, 1t is not perceived that the
practice Is open to the charge of
fraud. He resorts to devices to avoid
the payment of duties, but they are
not illegal. He has the legal right to
split up the evidences of payment, and
thus to avoid the tax"
President Roosevelt gave in his
extraordinary message to Congress
several examples in which some were
tax evasion and plainly open to pros
ecution under existing law and some
were tax avoidance and presumably
done with proper legal advice.
If the President is about to hold that
all tax avoidance Is unethical, then
there are people rather close to the
administration, if not in it, who will
have to turn into the Treasury a good
deal Of what might be called con-
science money. The President gave
anonymous examples. Here is one
which can be defended as legal so far
as the law is concerned but probably
contrary to the spirit Of the law or
the ethics as Mr.. Roosevelt outlines
the matter in his message
A certain taxpayer does great deal
Of work of the same kind that other
persons do for pay. This work While |
compensated for by the persons for
whom the work is done is or charity |
and the checks are not made out to
the person who does the work but are
sent direct to the charities. This |
avoids the tax altogether.
Tax Law on Case.
Now if anybody else IN business
were to get, let us say, 100000 in
income and attempt to give it all to |
charity, the tax law says that only |
IS per cent is entitled to deduction or
immunity from tax and that the |
other IS per cent bears the regular
income tax rates.
Would the President call it tax eva
sion or tax avoidance or unethical for
such a person who wants to give his
whole income to charity if the bene-
factor in question writes to all the
companies from which he receives
salary or dividends and tells them to
make out the checks directly to the
charities?
This is probably being done on a
wide scale. Until now it has seemed |
to be wholly legal and while subject |
to the description of tax avoidance it |
cannot be called tax evasion, though
some tax experts may differ on this |
too.
Sees Device q Screen.
The point is that Mr.. Roosevelt has |
selected a few instances and has
given the impression that lawyers who
advise their clients to avoid taxes by
legal methods are doing something
unpatriotic. If the tax laws of the
United States were fair and equitable
and if the people inside the admins
tration were free from criticism on the
subject Of tax avoidance, the message
to Congress might be regarded with
much more validity and with much
more weight than. it will be in a world
of realism, especially in the National
Capital, where 1t Is fully recognized
that the charges OF avoidance and
evasion are in truth but smoke
screen to cover up the fact that the
President has miscalculated the tax
receipts and failed to balance the
budget. Some day, if the facts can
ever be established, it probably will
be discovered that all the tax evasions
and avoidances put together wouldn't
bring in enough revenue to balance the
budget. This is because the official
data on net income Of persons in the
so-called "rich" class which Mr..
Roosevelt delights to attack are only
a drop in the bucket Of Government
deficits even if 100 per cent of such
income were conflscated. But it makes
better headlines to blame it on the
rich. Some day when the fortunes
Of the rich have been contiscated and
the purchasing power of wages has
been curtailed, it will be interesting
to see what other scapegoats will be
invented by the politicians.