Remember Learned Hand Before Criticizing Apple’s Tax Practices

Apple is the news, charged by Congress with evading taxes. In any discussion about taxation, the following quote from the great judge Learned Hand1 should be kept in mind:

Any one may so arrange 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 one’s taxes.2

Yes, as a society we must choose how to structure our laws and tax codes so that people pay their fair share of taxes.3 Certainly, a tax code that allows evasive practices is no good. Nor is it good if an overly complicated4 tax code simply benefits lawyers and accountants who make money by coming up with clever tax dodges; that doesn’t add any value to society. But the criticism should be on the tax code, and on a political system where special interests prevail over prudent economic and social policy, not on companies that are following the law.5

Update: Also take a look at Matt Yglesias on this.

  1. For more on Hand, I recommend Gerald Gunther’s biography, which I remember enjoying (albeit many years ago). 
  2. Helvering v. Gregory , 69 F.2d 809, 810-11 (2d Cir. 1934). (Note that the 1935 Supreme Court case permutes the order of the parties.) 
  3. I’m not convinced that having a corporate tax is the best way to do this. Economists all over the political spectrum agree. Obviously, since the rich would benefit most by removing corporate income taxes, we would offset this by appropriately increasing income and investment taxes. (One criticism to this is that removing corporate taxes deprives the government of an easy lever to incentive certain corporate behavior through tax credits. I suppose the government could use subsidies. Obviously, there are details to think about. Further, in an interconnected, global economy, there needs to be coordination between different countries’ tax codes. Of course, we should also add Pigovian taxation of corporations for negative externalities like pollution.) 
  4. The qualifying “overly” is crucial here. I am not at all suggesting an overly simple, flat-tax approach. In an age where computers can handle calculations and paperwork that would pose an unreasonable burden on humans, there’s no need to be afraid of having appropriate gradations in our tax code. (What is outrageous is that we need to pay money to a company like Turbo Tax to do this.) In fact, it strikes me as far more elegant if we did much more of this; why not have continuously increasing rather than discrete tax brackets? (I admit that this might be a bit much, and in fact might not be worth the hassle.) A big one that bothers me is the removal of income-averaging, which unfairly affects authors who receive large lump sums that represent years of poorly remunerated work but are taxed as if this were their regular income. Should Chad Harbach really be taxed at the same rate as an investment banker? 
  5. Of course, if companies are breaking the law, that’s a different story.