Ethics in Taxation
Glenn Newman, Former Treasurer and President
Brooklyn Society for Ethical Culture
This time of year all of us are required to think about taxes. Whether we are paying attention to the politics of the day, filling out our federal and state tax returns, or just looking at our pay stubs and wondering why the government takes a portion of our earnings. Talk about taxes generates a lot of heat but not much light. From pledges by politicians to never raise taxes under any circumstances, to tax protest movements, to collection and enforcement injustices, there are many ways to look at how we raise revenue for the functions of government we deem essential. Being mindful of the ethical issues that arise in each situation helps us to arrive at a fair and equitable system of taxation that benefit all in society.
As a tax professional for the past 33 years in both government and private practice, every day I come in contact with people who have tax problems—some of their own making, some due to misunderstandings or failures of communication. Each person needs explanations and, often, a few minutes of venting, allowing frustrated citizens some time to give their story of how things got to where they are today. In private practice the ethical imperatives were clear—advocate zealously for a client within the bounds of the Code of Professional Responsibility, and make those arguments that have a reasonable basis in law. In public office, however, there are more nuanced ethical issues. I was taught long ago that the job of a government attorney in tax administration was to get the right amount of tax paid, no more or less than what is owed under the law. More recently, as pressure on tax administrators to bring in more revenue without politicians having to raise tax rates or impose new taxes, there has been a trend for government lawyers to adopt the ethics of the private Bar and treat the tax department as if it were a private client advocating aggressively.
Frequently in dealing with tax issues on the micro level (the direct impact of taxes on individuals and businesses) the question comes down to conflicting principles. For example, people can get caught in "traps for the unwary" such as deadlines for filing or qualifying for benefits that many would say are unjustifiable. If someone is eligible for a tax exemption as a senior citizen, is it petty and unethical to deny it on the basis of missing a filing deadline? As someone who has been involved in tax administration for many years, I can assure you that deadlines are necessary in order to set budgets, get out bills and properly keep accounts. Allowing exemptions to deserving people at any time sounds ethical and benevolent but it conflicts with the also virtuous ideals of certainty and good accounting.
When we look at these issues on a macro level (how these choices operate in society) we can get vastly different judgments. Living in a civilized society requires a social contract—is not democratically elected government and adherence to society's rules part of that contract? Can any society permit some people to choose not to pay legitimately imposed taxes because they disagree with the government position? Such a policy is not workable in a democratic society, since each individual with a principled stand on any moral issue of the day could take refuge in that morality to pick and choose the programs his or her taxes would support. For example, a fervent Roman Catholic could choose not to pay income or sales tax because some State funds may be used for abortion services, or a fervent opponent of the death penalty could refuse to pay taxes because funds are used to prosecute and ultimately execute a defendant. Allowing each individual to choose which government activity deserves support would be a fascinating experiment in participatory budgeting. [Such an experiment was recently conducted in Brooklyn by New York City Councilman Brad Lander, see http://bradlander.com/PB
The macro issues of taxation must be examined through the ethical choices that only society as a whole can make. Should we tax earned income (e.g., wages and self-employment) more heavily than unearned (e.g., interest, dividends and capital gains)? Should we tax consumption (via a value-added tax or sales and use taxes) rather than income? Should we tax wealth either through property taxes or on transfer (estate tax)? Each of these choices requires weighing ethical considerations as they affect different segments of society in different ways. They can also be structured to be more or less regressive, and distributed among the taxpaying population, in different ways.
I prefer an array of taxes (to balance for economic cycles) with broad based taxes and lower rates (to make evasion more difficult and less profitable). However, even those broad choices reflect my own social preferences and could be disputed by economists or others espousing a more pro-business tax policy.Submissions for the next issue should be 500–750 words (about one page) and sent to dialogue[at]aeu.org by Monday, June 25, 2012. Please include your potential title in the email subject line (e.g. "Ethics in the Post Office").