Guidelines for behaving in a socially responsible way toward taxes?

August 6, 2019 2:46 PM

I'm trying to be socially conscious. When it comes to taxes, the government offers many potential deductions, e.g. tax-deferred retirement accounts, deducting mortgage interest, opportunity zone funds, and some states have lower tax rates. At what point would utilizing these rules go from "being fiscally smart" to a resentment-provoking situation of "taking advantage and not paying your fair share"?

I've been reading criticism about tax unfairness in the US. I'm trying to figure out how to be socially conscious in my own behavior.

It's not as simple as "Trying to pay less tax is bad". It seems acceptable to use tax reduction strategies such as IRAs and 529s, or putting higher-tax investments in my retirement account, or balancing stock gains by selling stock losses in the same year.

It's also not as simple as "Avoid doing anything illegal". Corporations such as Amazon used a (presumably) legal method to pay zero taxes while making billions in profit. It was legal but still seems bad.

One guideline I considered is "Follow the spirit of the law, and not just the letter of the law". For example, it seems okay if someone chooses to move from a high-tax state to a low-tax state. But it doesn't seem okay if a New Yorker spends 6 months per year in Palm Strings to avoid NY state tax, since that is not following the spirit of the law.

I'm also wondering if the moral guideline is influenced by how much money I have. People seem supportive of average-income people maximizing their tax savings, and resentful of wealthy people doing it. If my net worth increases over the course of my life, do I need to change my tax strategy in order to stay socially conscious? Or is the morality of the tax-saving strategy entirely dependent on which strategy it is?

Please share any of your guidelines or how you think about this for your own tax strategy.

posted by sandwich to Society & Culture (28 answers total)

If you don't have a personal team of accountants and lawyers helping you avoid taxes, I think you're fine.
posted by J.K. Seazer at 2:53 PM on August 6, 2019 [24 favorites]

While the line is an interesting philosophical question, following a policy of "Don't do anything that may get you audited" will keep you very far this side of it.
posted by Tell Me No Lies at 2:53 PM on August 6, 2019 [4 favorites]

People seem supportive of average-income people maximizing their tax savings, and resentful of wealthy people doing it.

The resentment is not over the wealthy doing it, but over the wealthy having so many more opportunities to do it. If the system were rigged so that poor people had the most opportunities to save, but rich people still had a few, I don't think anyone would mind the rich people taking advantage of the ones they were given. The problem is that the system is rigged in the opposite direction.

If you agree, then the ethical thing to do is to go ahead and take the deductions you're entitled to, but fight hard for a fairer system — including, if you are poor, for changes that would lower your tax bill, and if you are rich, for changes that would raise it.
posted by nebulawindphone at 2:58 PM on August 6, 2019 [29 favorites]

I use an accountant for my taxes, and started using him after screwing mine up badly enough one year to warrant a letter from the IRS. He amended and corrected the return and has taken care of them ever since. He's painfully honest and basically takes care of them so that I don't make another mistake. It's frankly not all that expensive compared to shelling out for the next edition of TurboTax and I don't want to give them any more business anyway. I want do what's required, honestly and credibly. If you're not in the super-wealthy tax brackets, there's not going to be a ton of options to avoid paying anyway beyond ginning up deductions to which you're not entitled, and then you run the risk of an audit.
posted by jquinby at 3:06 PM on August 6, 2019 [2 favorites]

Perhaps you can think of it in terms of taking the deductions for things that you have done and were going to do anyway, vs. doing something you'd normally not consider purely to benefit from particular deductions. The former is, IMHO, fine. The latter might be something that prompts some soul-searching.

Mega-corporations, for example, specifically shift money around between various subsidiaries and locations for the purpose of avoiding taxes. This isn't a "Oh, MegaCorp Euro is going to need more cash by March 31st, so we should give it some" it's "By shifting the money to MegaCorp Euro before March 31st we can avoid paying blah blah tax". This has always struck me as ethically dubious.
posted by It's Never Lurgi at 3:28 PM on August 6, 2019 [4 favorites]

Say your accountant finds a loophole you could use, and you don't think it should exist... I feel like there's a case to be made for using it anyway and then donating the money you saved to somebody who will close that loophole...
posted by kleinsteradikaleminderheit at 3:35 PM on August 6, 2019 [6 favorites]

Seconding that the problems you've identified are mostly systemic ones; the actions of any individual taxpayer are unlikely to make a difference one way or another unless they're a 1%-er or very near it. For my part, tax-advantaged retirement savings mean that I'm less likely to be a burden on the system once I'm retired, and claiming charitable cause deductions means I can send some money that would've gone to 45's administration will instead go to benefit progressive causes. If you're not actively looking for loopholes and such, I think you're fine.

You're much more likely to make a difference in the overall fairness of the world by being a civically engaged and knowledgeable citizen.
posted by Aleyn at 3:37 PM on August 6, 2019 [3 favorites]

As long as your aren't committing fraud by misrepresenting donations, expenses, etc., I'd say save as much money as you can, and then donate some of it to your favorite charity.
posted by tracer at 3:49 PM on August 6, 2019

If you're looking for an organization to support that works to make tax policy fairer, check if there is a State Priorities Partnership member in your state. State priorities.org.
posted by postel's law at 3:50 PM on August 6, 2019 [1 favorite]

If my net worth increases over the course of my life, do I need to change my tax strategy in order to stay socially conscious?

Yes, of course. Likewise, as your net worth and income increases, all your choices have more impact and I personally believe your attention to the ethics of your actions should increase. That’s a moral statement.

IDGAF that the people hustling lawn mowing gigs and casual babysitting don’t declare that income to the IRS. I absolutely have a problem with complex and completely legal tax avoidance schemes like the ones you describe regarding residency, Amazon etc.

FYI: we call it ‘tax avoidance’ when it’s legal, and we call it ‘tax evasion’ when it’s illegal. Tax evasion can be ethical and tax avoidance can be unethical imo, YEthicsMV, but my main point is the richer you get the more it matters, and your current wealth can absolutely change the ethics of a given choice.
posted by SaltySalticid at 4:05 PM on August 6, 2019 [6 favorites]

ITEP is another non-profit dedicated to analysis and reform of tax structures, if you are interested in that option. Their main thing is to use real data to show how fair or unfair a given policy is, and they report on all US states and the feds.
posted by SaltySalticid at 4:11 PM on August 6, 2019 [1 favorite]

I generally agree with the idea that you should work to change the system, but I also think there are examples where the ethics of credits/deductions arise. During the early 00s, there was a period when businesses or self-employed people could claim a huge deduction on big SUVs -- aka "the Hummer deduction" -- and even now there are incentives to go big. Maybe don't buy that big SUV if you don't need it. Another example: if you buy farm property to claim tax credits -- purposefully doing the bare minimum amount of business to avoid the IRS treating it as a hobby farm -- maybe don't buy that farm.

If you contort your life to fit the tax code, you're going to face ethical questions.
posted by holgate at 4:20 PM on August 6, 2019 [3 favorites]

Slight derail, but: I have some money (enough to matter, not enough to buy a yacht or some shit) handled by a company that says they "invest ethically"... and they do ask you what you care about most; my money is on the "fair labor" track... well.

I haven't looked at it in detail (I should), but basically what I believe happens is that the 'ethical' part is about big as they can get away with while maintaining the bottom line... for the other 80ish%, all bets are off. I'd much prefer an option that would allow me to say "here's a list of businesses/stocks/instruments/whatever that are a hard no"... Not sure that exists though
posted by kleinsteradikaleminderheit at 4:37 PM on August 6, 2019

You might also consider donating to charity to reduce your tax burden, which would have the additional benefit of putting the money you would pay in taxes directly toward the causes you want to support. The link is to a guide that gives an overview of how to do that, how to find an applicable charity, and what you would need for documentation.
posted by Autumnheart at 4:41 PM on August 6, 2019

I feel like you're overthinking this. Pay what you're obligated to pay -- but take advantage of whatever loopholes are available to you. If you want to assuage your guilt, donate to charity, as @autumnheart says. Warren Buffett and Bill Gates make buckets of money, but they're both liberal at heart. They don't pay much in taxes but they make up for it by routing millions to charitable causes.
posted by jdroth at 4:57 PM on August 6, 2019

Here's another way to look at it -- a good bit of the money collected by the irs goes to fund wars and other shady things our country does overseas. don't cheat, but don't feel bad about not paying the most you might. the money that you don't give the irs can be used in any ol' ethical way you choose after all.
posted by OHenryPacey at 5:02 PM on August 6, 2019 [1 favorite]

The laws are the same for everyone. Follow the law -- even the parts you don't like, regardless of why you don't like them. That means if you're eligible for a deduction, take the deduction. If you received interest income, own up to it on your return. Etc. That's what any accountant who wants to keep her CPA license will do if she does your taxes for you, and it's what you should do, too.

The problem is that rich/powerful people pay to influence how the laws are written. But once Congress or your state's Assembly passes those laws, you need to comply with them.

If you sincerely care about tax policy, agitate for change at the legislative level. Don't try to change policy by screwing up your personal return.
posted by rue72 at 5:25 PM on August 6, 2019

I avoid things that have shady-sounding nicknames (mega-backdoor anything? No thanks) or things I read about as "trendy among tech billionaires" (looking at you, donor-advised funds). Anything you'd expect to see in TurboTax seems like fair game.
posted by potrzebie at 6:00 PM on August 6, 2019

The government is us. They deserve to receive everything they're legally entitled to, and not a dime more. I think spending too much time worrying about whether a deduction is "fair" is misplaced emotion. Pay what you're required, take every deduction to which you're legally entitled , and if you don't agree with the way you're being taxed, get involved and do what you can to change it.
posted by summerstorm at 6:39 PM on August 6, 2019 [2 favorites]

I agree with your perspective. I don't think "follow the law" is a very sufficient strategy for behaving ethically in everyday life. I wish it were, but we do not live in a world where the laws make as much sense as all that.

"Follow the spirit of the law, and not just the letter of the law" seems correct in cases where the spirit is identifiable and something that you endorse. For example, the law permits us to deduct donations to nonprofits. This seems like a reasonable way to incentivize people donating their resources to public goods. It would be obviously unethical to abuse this by inventing a fake nonprofit that does things that only benefit you and then donating money to it, even if that happened to be legal (I assume it's probably not.)

However, it's very difficult as a layperson to figure out the spirit of tax law in cases where there are "loopholes" like the mega backdoor stuff and Roth conversion ladders that are well-documented and which many people use, and which still exist. If they weren't in the spirit of the law, perhaps legislators would have changed the law? But maybe not, since legislators are not very good at their job? It's hard to understand. And if you try to reverse engineer whether these deductions are actually good or bad for society, never minding the law, well, good luck to you figuring that out.

In the end, unless it's really obviously unethical, I usually end up doing all the normal stuff to minimize my taxes and just donate increasingly large portions of my money to obviously-way-better-than-the-government things the more of it I find I have left over.
posted by value of information at 6:44 PM on August 6, 2019 [1 favorite]

Any tax laws you deem unfair (e.g., some feel that subsidizing mortgage interest and not rent is unfair), you could take those tax savings and balance the fairness by donating them (or half of them at least) to a non-profit that helps, in this case, renters.
posted by salvia at 8:24 PM on August 6, 2019

The problem with trying to obey the spirit of the law when it comes to the U.S. tax code is that very often the spirit of the law is, "Mr. Whittaker Thompson III should pay less," only they can't stand up on C-SPAN and say that, so instead they propose that breeders of apple-head Chihuahuas with exactly three bitches should be permitted to deduct transportation costs for their dogs. Now every time Mr. III charters a plane, he makes sure to bring one of his dogs along, and voila! $50k deduction right there.
posted by meaty shoe puppet at 8:37 PM on August 6, 2019 [2 favorites]

I live in a country where even food and basic living items are taxed - at 15%. Any legal avenue I can take to meaningfully reduce my tax burden is worthwhile.

My government (no matter who is in) consistently spends $ on things I neither want or agree with - your government has the same playbook. I have no moral issue if I can pay less tax. I don't have funds to donate but do get involved in trying to improve the system, which I feel is a more effective route anyway.
posted by unearthed at 11:57 PM on August 6, 2019

This is sort of the same idea as "There is no ethical consumption under capitalism." Technically, anything you do to decrease your personal tax burden is shifting that burden to the rest of the taxpayers. That is not your fault and you don't need to beat yourself up about it. Are you generous in other areas (more than just charity, for example tipping and choosing union shops) and do you advocate and vote in ways that promote government funding and fairer taxes as positive things? I think that is way more important than paying a few hundred or thousand more in local, state or federal taxes.
posted by soelo at 8:43 AM on August 7, 2019

Response by poster: Thank you for the replies. I've read all of them twice.

If this question were asked by a member of the 1%, how would your answer change?

Thanks everyone!
posted by sandwich at 2:47 PM on August 7, 2019

I think we should all take full advantage of the opportunities available to us legally.

My problem is with the way the super-rich influence the laws to create those opportunities for themselves.

Mr. III is not getting bespoke tax loopholes thrust into his unwilling hands. He is actively campaigning for them, or even buying them outright via strategic donations. Don't do that.
posted by meaty shoe puppet at 8:29 PM on August 7, 2019

If this question were asked by a member of the 1%, how would your answer change?

Not too much. I'd recommend they use what they save in taxes to provide consistent operating funds for nonprofits doing important, life-saving work.
posted by salvia at 11:19 AM on August 8, 2019

I’d say the top 1% should be spending their money to support politicians who will tax the 1% at a higher rate. Spending your own money on social welfare is fine, but better to make all the rich folks pay.
posted by SaltySalticid at 5:53 PM on August 14, 2019