Badminton, taxes, regulation …. and the people’s justice

Legislators, regulators, sports administrators and similar, should devise watertight systems of rules within which people are entitled simply to go for it. But it is highly questionable that such watertight frameworks are possible, even in principle.

Well indeed. In the context of tax legislation, some UK Tories came out recently to argue that no one is obliged to do anything more than follow the letter of the law. Leaving the issue of interpretation aside: laws are made, in democracies, by majority groups of legislators operating under time constraints and with opposition. Getting a majority in the time available typically involves compromise and amendment. And since parliaments themselves only last so long: there is a limited quantity of law that can be addressed in the first place. It seems highly unlikely that a national body of law will be watertight, fully worked out, internally consistent.

Actually I’ll go further; a legislator in a democracy who makes a ‘letter of the law’ argument is more or less inviting an accusation of bad faith. A legislator has to know that law is imperfect.

It’s nice to hear the other side of the case formally for a change. But I’m on the side of the Hayekians on this one.

Major point: “abuse of power” is not the only argument against giving greater discretion to regulators. A very big one is uncertainty and the way that uncertainty affects not only the companies (or rather their shareholders) but customers and employees. Take labour regulations, which you talk about. The US has a “you can fire anyone for any reason except” system, where the exceptions are race, sex, age and the like. On the other extreme, in India, we have (yes, have; the labour regulations never got liberalised) a system under which corporations have to (theoretically) get permission to fire any workers. Since firms cannot fire workers, they’re reluctant to hire them which raises unemployment, reluctant to expand (the regs kick in after the firm grows to 100 workers) which crimps economies of scale and lowers output and existing workers become undisciplined which causes productivity (and wages!) to fall. Poverty rises as a result of this: http://econ.lse.ac.uk/staff/rburgess/wp/indreg.pdf

Thus a shift to a system where (labour) regulators can change the rules ex-post will result in a system where the rules are unclear. Imagine a system where the city can decide if a protest is allowed or not after the protest. Even if the regulators were wise and benevolent, the simple fact that they’re human and that you don’t know how they’ll rule would make you reluctant to turn up at the demonstration. Similarly, corporations and individuals will become more reluctant to invest and innovate in a system where they don’t know if what they’re doing is legal or not, until they’ve done it – or undergone a long expensive process of taking permission from the regulator.

Second point: if “abuse of power” was simply the regulator acting like a power-mad asshole or taking bribes, it wouldn’t really be a problem for the bulk of us. The problem is that the regulator may change the rules of the game to suit existing vested interests, entrenching monopolies/oligopolies and creating barriers to free entry.

The problem with the solution is that its incredibly difficult for an average voter (or even a savvy one) to tell whether any particular decision was justified or not. If a solution doesn’t exist to a major problem, than perhaps the policy is best avoided, even at some cost. Perhaps the current system under which we update the rules to prevent future occurrences of misbehavior (at the cost of not punishing past misbehavior) is better than a system under which we can retroactively punish bad behavior, at the cost of greater uncertainty about the rules of the game and vested interests.

Minor point: tax evasion is when you don’t pay taxes by doing something illegal such as not reporting income. Tax avoidance is when you avoid taxes but stay within the ambit of the law. Suppose a country wants to encourage saving (say to promote economic growth). Things like Fixed Deposits, National Savings Certificates (which exist in India, my country) get tax-exemptions. When people ‘avoid’ taxes by using these routes they’re doing exactly as the legislators want.Whether you like it or not (and Hayekians don’t) the tax system is a tool of social organisation in most countries and tax ‘avoidance’ is part and parcel of this.

Imagine a system where the city can decide if a protest is allowed or not after the protest.

So what? They already decide whether or not to tase or pepper-spray the protestors (or at Kent State, fire on them with live ammo) *during* the protest. What’s legality compared to that?

As far as the badminton players, I agree with the third camp: that tournaments should not be structured to give players an incentive to lose in the first place. It’s inevitable that people will have incentives to dodge taxes, but there’s no need to make a tournament system where you can further your interests by losing, so they shouldn’t.

I’m finding some of these comments puzzling, so may be missing the point: does anyone really, actually think that it is possible to devise a system of rules for anything remotely complex that covers every possible eventuality? If not, then there will always be scope for interpretation and dispute, whether you think that’s a good thing or not, and someone will have to be granted the power to adjudicate. Therefore we’re arguing about how much flexibility any given system should include (or, cannot avoid including), balancing the fear of giving any individual too much power to decide against the costs inherent in a system of rules that’s too complicated for anyone to understand without relying on expensive lawyers and tax advisers.

Yes but surely it makes a difference that competitive badmitton is, well, a competition and tax paying isn’t?

Spelling can be competitive however . . .

In the case of tax avoidance, though, you have the option to pay what the tax authority thinks you should pay; case closed. Prosecution isn’t exactly what’s going on in that scenario, nor is it a matter of being judged and punished for falling short morally; it’s simply that the state thinks that you ought to be paying more tax.

This is a fair point…but the actual situation is more complicated. The tax avoidance is actually a legitimate application of the state’s rules for taxation (manipulated for personal gain, perhaps). So its a case that the case thinks you should pay more tax, not because thats what the rules say but because….you should.

“So we need to give the enforcers some discretionary power to zap the bad people: people who knew perfectly well that what they were doing was at or over the moral and legal boundaries but didn’t care. Such power is, of course, liable to abuse.”

We spent quite a long time, centuries really, building a legal system that didn’t do this. In order to be punished by the law or the courts you have to do something that was unambiguously illegal at the time that you did it, it has to be proven in open court that you did so as well.

Now maybe tax avoidance is a terrible thing. But is it really so terrible that we’d like to overturn that cornerstone of the basic system. You can’t be punished for being a bad ‘un. You’ve got to be proven to have done something specific that was illegal.

The last 30 odd years have provided a cautionary tale from the US. In order to “beat drugs” it became possible for the authorities to confiscate the proceeds of drug dealing. This has now morphed into the confiscation of any middling sum of cash (above a few thousand $) on the grounds that, hey, you prove that it wasn’t from drugs. Or you weren’t going to buy some with it.

A slippery slope argument is often derided as bad logic: but when we’re talking about the erosion of the protections of the citizenry from the desires and oppressions of the rulers it’s often appropriate logic even if bad such.

Tim, you write:

We spent quite a long time, centuries really, building a legal system that didn’t do this. In order to be punished by the law or the courts you have to do something that was unambiguously illegal at the time that you did it, it has to be proven in open court that you did so as well.

I don’t see that an anti-avoidance rule – or some sort of legislation regarding interpretation, as JQ mentions – necessarily does anything to undermine this. The reverse, we would hope, since ambiguity is reduced.

Am I the only person in the world who doesn’t know who “those badminton players” are? Not even a link?

I fail to see what the problem is. Ambiguity in the law is unavoidable. That’s why we have judges and courts of law that exist to solve this problem one case at a time. Those rulings that the judges hand down can be overturned by the legislature.

For example, individuals who attempt to avoid paying taxes can be brought into court by the IRS. A judge won’t adhere to an overly legalistic view of the taxpayer’s conduct. If it’s clear that the taxpayer is simply attempting to “avoid” taxes, then he or she will be forced to pay. If the judge rules incorrectly, then Congress can act to address the situation and amend the law. In fact, that is what frequently happens whenever someone gets away with a clever tax avoidance scheme.

Not sure why we need some sort of generic anti-avoidance rule (which is bound to lead to false-positives), when the system already works itself out on a case by case basis.

“or some sort of legislation regarding interpretation,”

I’ve no problem with people proffering legislation. Might complain about what’s actually in it of course.

What I don’t want is the “enforcers with discretion to zap the bad people”. Because we only know who the bad people are once we’ve proved such according to the law as it is written.

To take a recent example: Vodafone. Apparently they dodged £6 billion in tax. Nonsense, that number is entirely an invention of Private Eye. There was a dispute though over some £2 billion. Stripped down the dispute was that the UK tries to tax profits in offshore subsidiaries under the CFC rules. These may or may not be compatible with the EU rules on the single market. How to work out which sets of laws prevail? Only through the courts really. That means trials: not enforcers who get to zap the bad ‘uns pour encourager les autres.

I am much, much, less worried about what the tax laws are than about who gets to enforce them. Courts and the legal system please, not bureaucrats and most certainly not “enforcers” who may or may not get a wink from a politician or two.

The solution is not to pretend that we can make the rules work perfectly, but to make sure the enforcers are genuinely democratically accountable and removable.

If so then most ‘democracies’ fail on that score: Invariably, in practice the ‘rules’ are determined, interpreted, and enforced by some bureaucracy well distant from anything that could be termed ‘democratic’ – and not by the nominal democratically-elected legislators themselves, who (usually) barely even know what rules they have voted in.

Financial regulation, which you allude to, is a particularly bad offender in this regard: for example in the US, a piece of regulatory legislation (Dodd-Frank) was democratically passed two years ago but the bureaucrats have yet to fill in the details and it is not clear to anyone involved (especially the legislators) what exactly those details will be. This is anything but a ‘democratic’ process, if that was supposed to be our savior here.

I think you should look at the recent attempts to introduce a general “anti-people-saying-bad-things-on-twitter” rule, in the light of both the joke about blowing up an airport and the recent arrests for tweeting abuse at celebrities.

Both the public order acts and the anti-terror legislation are extremely vague about what is and is not allowed.

“We spent quite a long time, centuries really, building a legal system that didn’t do this. In order to be punished by the law or the courts you have to do something that was unambiguously illegal at the time that you did it, it has to be proven in open court that you did so as well.”

I am inclined to agree with Tim on this. Plus I see no reason why the tax code has to be as complex as it is. Just because we have allowed lobbyists and corporate interests to pervert the current code doesn’t mean that this always has to be the case.

I think it desirable at once to point out and dispel a confusion between morality and law, which sometimes rises to the height of conscious theory, and more often and indeed constantly is making trouble in detail without reaching the point of consciousness. You can see very plainly that a bad man has as much reason as a good one for wishing to avoid an encounter with the public force, and therefore you can see the practical importance of the distinction between morality and law. A man who cares nothing for an ethical rule which is believed and practised by his neighbors is likely nevertheless to care a good deal to avoid being made to pay money, and will want to keep out of jail if he can. * * * If you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences which such knowledge enables him to predict, not as a good one, who finds his reasons for conduct, whether inside the law or outside of it, in the vaguer sanctions of conscience. –O. W. Holmes, Jr.

http://www.constitution.org/lrev/owh/path_law.htm

Ah, I remember the days when we used to respect the rule of law. Good times… good times…

These days, as long as you’re politically well-connected, you can get away with anything. And if you’re not politically well-connected, you can be punished arbitrarily for anything. Who cares if you’re technically innocent – as long as the prosecutor / police hate you, I’m sure you’re morally culpable for something!

Yup, that sure sounds like progressive justice to me.

Who cares if you’re technically innocent – as long as the prosecutor / police hate you, I’m sure you’re morally culpable for something!

I was thinking of saying that there are *three* parallel systems – the legal system, the regulatory system and the police system – but it seemed a bit too cynical, at least for this thread.

Actually, now that I think of it, the justice system that Chris is describing already exists for black and poor American men. Written rules exist for searching, arresting, beating, and shooting people, but police officers have vast discretion in obeying and applying those rules.

So we need to give the enforcers some discretionary power to zap the bad people: people who knew perfectly well that what they were doing was at or over the moral and legal boundaries but didn’t care. . . .Such power is, of course, liable to abuse. But that’s just the way things unavoidably are. The solution is not to pretend that we can make the rules work perfectly, but to make sure the enforcers are genuinely democratically accountable and removable.

I largely agree. And this helps clarify some of the things that make serious discussion of the steroid era in Major League Baseball so difficult.

Let’s stipulate that the entire “purity of the game” angle is a bunch of nonsense. It’s entirely possible to play baseball while allowing players to use steroids (though this imaginary scenario is made more difficult by the fact that steroids are controlled substances in the U.S.).

Problems arise, however, when steroids are banned and the players using them are gaining an unfair advantage relative to the rules of the game. Any game depends on a level playing field, though the contours of that playing field are, by the very nature of organized sports activities, ultimately arbitrary. If one decides to play baseball without steroids (or metal bats), those who use steroids (or metal bats) threaten the game, not because these things are “impure,” but because they upset the level playing field.

What’s worse, during the steroid era of MLB, the status of steroids in the game was itself a huge mess. The official position of the Commissioner’s Office was that steroids were banned. But there was no enforcement mechanism and organized baseball was clearly looking the other way, as home run numbers escalated and fans flocked to games. Players knew both that steroids were technically against the rules of baseball and that this particular rule was not being enforced.

Making matters even more of a mess, baseball’s rule against steroid use was not established via proper collective bargaining, as baseball’s often fractious labor situation was itself a mess in the 1990s (which, in turn, accounted for the lack of any enforcement mechanism). The rule-makers and (potential) enforcers were not in any sense accountable to the players in this case.

All of this makes retrospectively evaluating steroid use in MLB in the 1990s legitimately tricky.

The distinction made in the OP is important, but I’m not convinced it’s helpful for people making decisions. The last few comments demonstrate one reason why. On the one hand, who decides who has a correct understanding of the reasons for the law (to keep people from being beat up, or to keep people delivering beatings from being prosecuted?), and what is just an over-elaborate justification for bad behavior which any reasonable person could see through?

On the other hand, where are the rule-of-law fetishists, etc., who don’t believe there are already a set of fully-elaborated rules that cover every eventuality?

So I suspect that introducing the distinction would result in a lot of time spent discussing the distinction and little time for anything more.

I think it is a weak argument that someone should pay more than they are legally required to pay. Even if you win the argument, what have you achieved? If you convince the majority of voters, the only result is that rich folks running for office will “overpay” (i.e., pay the percent that I do). Better to take this all as evidence that the rules should be improved, even if perfection is unattainable.

“Latest comments” referred mostly to Matt McIrvin and J.P. Stormcrow. But don’t be too casual about using sports as a metaphor for society is also right. These are all very high-level examples. Even within sports there are simpler ones. Should boys be allowed to compete on girls’ swim teams, as they are here, during the season when there is no boys’ swimming? If they are, should they be allowed to break and set records (as they only began to do after they’d been competing with the girls for a while, when it became more of a regular thing)? There’s a rule that lets them compete, and no rule that says they shouldn’t set records in the girls’ league, so it seems there’s nothing that can be done except only scheduling girls swimming when there’s also boys’ swimming.

Aulus 30 and tomslee 33: I wonder whether students have already caught on to that trick. Whenever they write an essay without proper introduction, without specifying terms and definitions, without providing context, they now have the lmgtfy defense. And why shouldn’t they, if their professors are doing it.

CB @58:
You should probably be more careful about what you’re arguing then. There’s really two classes of not paying your taxes. One gets you slapped with heavy fines and jail time because the state decides you clearly intended to violate the law. In the other the state informs you that you calculated your taxes incorrectly and must pay up the difference. I’m not the kind of person who believes that pedigree-test, Hart-style rule of law is actually achievable, but I do recognize that more or less discretion can be built into the system. For felony tax evasion or similar, clear violation of the letter of the law should be required. It sounds like you are arguing for much more discretion in the latter case, and that is a much different argument which you might want to clarify further based on your original ‘zap them’ comment.

There are still pros and cons to that approach, but I think they are contigent on whether the problem is that the avoiders have too much influence in the legislative process (in which case you need political reform more than you need tax reform) or whether you are simply dealing with a recalcitrant high court as in the case JQ identifies (though I don’t know anything about Australia in the 70’s mysefl).

This entire post rest of the pervasive trust CTers have in the impartial regulation of justice by government types. This system requires nothing less than getting the right people in the right posts and hoping like hell they don’t become corrupted by their power! Good luck with that! Rules are better than discretion and simple rules are better than complex ones. You succumb to the fallacy that rules need to be incredibly complex to account for every single possibility that could occur.

Perhaps we could give the Gowachin courtarena a try?
It helps keep down the number of lawyers.

If the law bans compound X and a smart chemist comes up with a tiny variation, compound X’, should we have to go back to the legislature or does Dixon of Dock Green get to say: “It’s basically the same stuff, Sunshine, you’re nicked” ?

I’m not really clear what would constitute a “tiny variation” on this common-sense approach, but my instinct would be to say that, no, the police should not have the ability to prosecute people for buying and selling substances that have not been outlawed. I realise that this is inconvenient for the police, but it strikes me as quite reasonable to give people a chance to know what is illegal or not prior to them being arrested/fined/imprisoned. Otherwise you essentially have blanket and ill-defined laws which will only tend to bite against the disadvantaged.

Its not that I expect a legal system to be perfect, and of course the legal process will consist of judgement calls at various stages. But not being liable for prosecution for doing something which isn’t specifically illegal isn’t about how you balance laws versus judgements, its about whether your citizens have certain basic rights or not.

In the US at least the DEA has the power to schedule drugs sans legislature. As for tiny variations, I suppose we can ask Chris why Buproprion is legal. In fact, the UK banned it for a number of years until Parliament amended the law to specifically exempt it from the ban on substituted phenylethylamines. The US has exempted drugs that are the subject of new drug applications from the regulatory scheme around narcotics, specifically to address this issue.

I think RobW is basically right about the impossibility of public regulators using broad discretion well, as long as it is understood that this is not an endorsement of a Calhoun-like argument for weak or no public powers to regulate.

The purpose of public regulation is to constrain the efforts of (private) players to socially useful paths.

The ideas that a stable equilibrium in any game sufficiently complex to permit even minimal strategic play (and that’s pretty much every game — even a footrace) is possible, and the corollary idea that a forever fixed set of rules (a dead constitution) is possible or desirable, even in principle, are simply wrong-headed, and must be rejected out of hand.

The point of strategy is to manipulate the conditions under which play leads to outcomes, so as to change the probability of desired outcomes from the conduct of play. Strategy, by its nature, is aimed at changing the effect and meaning of the rules, which is to say, strategy is aimed at changing the rules, as much as it is about changing the way the game is played; the two channels of effect cannot be separated. The path taken by gameplay within any institutional set of rules — a path set by strategy — changes the effect and meaning of the rules, as constraints on gameplay.

The public rules are, and must be, by necessity, strategic. If the rules do not change, adaptively, the institutional rulemakers lose control of the game’s socially valued outcomes. This is a bad thing.

Every institutionalized game comes with norms and rules and means for modifying and enforcing rules. It is never all ex ante, either; it cannot be in a world of genuine uncertainty, where we don’t know everything, and information for choices is not complete in every moment, but accumulates over time with experience. The “public” institutions of rulemaking are controlling for socially useful outcomes, and much of their rulemaking will take place in response to changing outcomes, ex post, as “governance”. Expectations are not everything; the rules are constantly modified by the strategic gameplay of the players, and by the governing decisions of the enforcers, which, like the common law, may try to form idealized principles out of the string of governing judgments.

All of which is to say, that the point that the rules, which act as constraints on gameplay, may well need to be “simple” bright lines, because it is important that the public regulators, who are providing a public good of governance, not be corrupted into becoming private players, lest the public good cease to be public or good. That’s not at all the same, though, as arguing as some libertarians or neoliberals might, that the regulator not have the power to govern effectively, or that the power to govern effectively requires detachment.

The neoliberal fondness for “discretionary” regulation by “priniciples” is founded on a fondness for corruption, and ought to be rejected with the same fervor as the libertarian’s idiotic anarchist insistence that no rules, no governance, no power is ever a good option.

So, back to badminton: as an act of governance, this intervention could be judged to be right and proper. But, if this act of governance is followed, not by other changes to bright-line rules, or changes in the methods of devising tournaments, but by the institution of discretion — discretionary judgements in every case over whether the players tried hard enough to count the outcome of the game, as having official effect — that could have a profoundly corrupting effect. I’m reasonably sure people involved would see that instinctively. But, as a warning shot across the bow, regarding certain paths strategic play has been taking — as a single salvo to get the attention of players — I think it could well be salutary, strategic action by the public authorities, who must act strategically as well, if they are to control the socially-useful outcome of the sport.

I’m remind of this great scene from a Man for All Seasons. Here’s a transcript:
Wife: Arrest him!
More: For what?
Wife: He’s dangerous!
Roper: For all we know he’s a spy!
Daughter: Father, that man’s bad!
More: There’s no law against that!
Roper: There is, God’s law!
More: Then let God arrest him!
Wife: While you talk he’s gone!
More: And go he should, if he were the Devil himself, until he broke the law!
Roper: So, now you give the Devil the benefit of law!
More: Yes! What would you do? Cut a great road through the law to get after the Devil?
Roper: Yes, I’d cut down every law in England to do that!
More: Oh? And when the last law was down, and the Devil turned ’round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man’s laws, not God’s! And if you cut them down (and you’re just the man to do it!), do you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil benefit of law, for my own safety’s sake!

Making sure that ” the enforcers are genuinely democratically accountable and removable” is not enough. Sometimes the tyranny of the majority can be just as bad as the tyranny of a dictator, and one of the rationales for the rule of law is to protect moral principles from the short-term arbitrary whims of the people.

There does seem to be an assumption in this post that the people who obey the letter but break the spirit of the law are all of one camp politically.

Also, if the spirit is easily detached from the letter by (for example) complex taxes, why are left-wingers often (not always, but often) so reluctant to simplify tax regimes and make laws clearer, so we could all see that what the law intends is visibly congruent with what the law says? I have seen flat taxes attacked from the left, but never making the proviso that “at least flat taxes have the virtue of making avoidance more obvious and easier to prosecute”.

The argument seems rather that the complexity of a progressive tax regime is deeply worthwhile and justified, that it serves a goal far more important than simplicity or clarity. From this follows that the fault in tax evasion lies entirely with rich people who do not embrace wholeheartedly the underlying goal of redistributing much of what they own to others.

@74: Don’t be silly. Tax avoidance does not arise because of a progressive taxation system.

Even an ideally democratically accountable and removable set of regulators still has the inevitable result of capture and corruption; capture by the majority deployed against groups outside of that working majority is no more a just system than capture by the connected.

The only real answer is to make the rules too simple to game, and then leave them that way. (Get rid of every piece of the tax code that doesn’t go on the current 1040EZ*. Decide that Round Robins are in the set of Nice Things We Can’t Have and do single, double, or triple elimination brackets.)

* (Extending the rate chart up to infinity and treating all forms of income the same, of course.)

And another thing…

to allow the enforcers a general power to capture the instances that fall outside the literal rules on mere technicalities, where the perps are obviously acting in bad faith

The qualifications I’ve highlighted are doing some important work, and I think it’s relevant that they can be read in two ways. One is restrictive and respects the rules that are being suspended: not instances that fall right outside the rules, just those that fall outside the literal rules; not suspect bad faith, but obvious bad faith. The other is rhetorical and dismisses them: damn it, man, these are mere technicalities! And this corresponds to two ways of looking at regulation: do you want something like an ombudsman, capable of challenging perverse interpretations of the law, or somebody empowered to regulate behaviour without going down the legal route at all? My worry about regulation in general, and regulation as a remedy for the law’s failings in particular, is that the second of these is justified by arguing for the first.

An interesting conundrum has arisen from the behavior of the Japanese women’s soccer team in their match against South Africa:

http://mg.co.za/article/2012-08-01-banyana-banyana-japan-manufacture-draw

“The Japanese took some shine off Banyana’s heroics with revelations that the team was instructed to manufacture a draw.
“It was the coach’s instruction that we wanted to stay in Cardiff and come second in the group,” said Japanese player Azusa Iwashimizu.
“So I knew that the bench was getting information about the other match [Sweden v Canada] and I had been told.””

Should the Japanese team be sanctioned, as the badminton players were?

I didn’t have time to read all comments, but it seems to me the classic text “What colour are your bits” discuss the same problem, but in computer science…

http://ansuz.sooke.bc.ca/entry/23

Here’s a half-hypothetical, half-concrete example:

1) There is a tax break aimed at supporting the film industry which allows film props to be depreciated fully in the year of purchase. I decide to make the film Johnny Vegas And The Room Full of Computer-Controlled Lathes. It has a theatrical release of one cinema, gross takings of £2 and nearly all of the expenses involved are associated with buying one hundred extremely expensive machine tools. I invite a hundred manufacturing companies to buy shares in my film, with the side benefit of having their choice of one of the props. Thus, they get to take advantage of my accelerated tax depreciation.

Clearly abusive. This film has no real existence other than as a means of allowing someone to claim the accelerated tax depreciation when they weren’t entitled to it. Obviously, any court in the land is going to say “we are looking at the economic substance of this deal, not your thin and transparent attempt to brush a thin wash of showbiz over it, and so your backers still owe the tax as if they’d bought the things themselves”.

2) However, I keep on promoting these films; Russell Brand in “Fleet of Vans”!, Eddie Izzard in “Valley of the Refrigeration Equipment”!, Lee Mack Presents “The Wonderful World Of All The 2012 Capex Of Wolfson Plc”!. And so on. At some point, the tax man and the courts surely have the right to protect themselves against the expense and delays in fighting me case by case, and to just say that I’m a serial promoter of abusive schemes and tell me to knock it off entirely, even though in every case I am claiming that no really, this time I really am making a genuine film. Why should this require statute law?

dsquared: why does this require a change to the rules? Courts can impose penalties on filers of repeated vexatious lawsuits, and your tax lawyer probably won’t represent you if you insist on saying the income tax amendment really wasn’t passed, because that question has already been decided. Even a law saying “persons who repeatedly relitigate tax questions will be disbarred” isn’t a problem from the law-and-order perspective. But that isn’t the question.

Rather it’s about a company that has an aggressive tax stance. The IRS goes and litigates with it for a bit, and the result is that some of those stances are ruled to be incorrect. The IRS cannot go up and say “because these stances were wrong, we claim these other ones a wrong also” if they are materially different. That seems to be what Chris is proposing: pay too little in taxes, face criminal penalties even if all you do is make a legal argument that you do not have to pay the taxes that the government thinks you do.

What happens in practice (and incidentally HMRC has recently suggested it be given the power to refuse to deal with ‘known characters’ as tax agents) is that as soon as HMRC see that you’ve appointed Daley and Spiv as your agents, you’re basically signing up to a non-insignificant chance of spending the next few years snarled up in expensive and time consuming enquiries about every aspect of your financial affairs, and your average tax inspector, even in these straightened and deskilled times, generally has more patience and stubborness than the average taxpayer.

Which is somehow a very British informal enforcement mechanism.

Phil:
Interesting. I was looking at this as the issue whether knowledge can be fully specified in rules, and so forth, as much as whether rules for behavior can.

If it can be, arguably, though of course questions of complexity come into play just as in any similar philosophical question, anybody including a manager should be able to tell whether or not things were done properly just by asking a simple question and getting a simple answer. Similarly, everybody who follows the rules should get the same answer. It seems to follow, good faith and competence can be tested by asking a few simple questions and getting back simple answers, that moreover match what the asker had in mind. Teaching the questioning of competence is also then simple. It could seem plausible that you can just take a few classes and get the benefits of everything science and philosophy have discovered about it, and after a little practice do this yourself successfully.

Also, I’m surprised Phil’s managers didn’t just say “okay” and proceed to redefine every task as something in the contract.

Seems to me that capping all deductions and credits at a certain percentage of pre-tax income would be a much less dangerous way of dealing with the freeloading rich than giving tax collecting agencies effectively unlimited discretion.

Tax freeloading becomes much harder if everyone in the top 25% is required to pay a minimum of 15% of their gross income, averaged over the past decade, in taxes no matter their current losses, deductions or loopholes. No exceptions.

And while we’re on the subject of insane pipe dreams, how about a 5% per year unproductive wealth tax levied on financial assets over $2 million (PPP for non-US)? There’s something to be said for getting the velocity of money up by preventing the idle rich from hoarding money in socially useless financial bubbles.

Civil disobedience is preferable to civil obfuscation, but both are completely reasonable mechanisms for undermining state authority; in either case though, you’re basically playing paintball with the entity that has the monopoly on violence (or Jenga with the entity that has the monopoly on institutional structure).

I’m just not sure what libertarians think a prohibition on discretion would accomplish. Arguing with a rule-enforcer about what the rules let them enforce is appealing to their sense of discretion. Arguing to a judge that you were subjected to unreasonable illegitimate discretion not technically permitted by law is appealing to the judge’s sense of discretion. Arguing “ha ha your hands are tied because the letter of the law says” carries the same content. Authority is discretionary authority, investigation is discretionary investigation, enforcement is discretionary enforcement. No pinky swear can get around it. I guess that’s what you get when you think the ‘contracts’ part of state-enforced contracts supercedes the ‘state-enforced’ part.

Maybe the goal is to disempower rogue agents of the state, who act against the state in their professional capacity, exploiting their authority to render illegitimate judgments? A state that has agents who investigate and punish some of its other agents for being bad agents is… perfectly normal.

But assessing dereliction of duty is inherently discretionary, as much so as assessing whether someone committed a crime. Some human being or group of human beings has to issue a statement that the agent acted wrongly or rightly. At some point it has to come down to, “Because we said so.”

Arguing about whether law possesses ‘intent’ is almost completely beside the point. Law is just stuff an agent can point to, to justify the actions they take in their capacity as an agent, to other agents who might attempt to disempower them. “I’m doing what I’m supposed to do.” It works basically because Panopticon, there are enough other officers who would take an appeal to the law seriously and abidingly. If every police officer decided it was okay for police officers to not arrest cocaine dealers, does it matter whether the law actually grants them discretionary authority? What is the law at that point, other than something we can point to, hoping to get other non-police-officer agents of the state to exercise their discretion and somehow disempower the police force? And if that’s all the law is at that point, what is the law ever, other than something we can point to in an appeal to agents of the state, hoping there’s enough consensus among those agents that our appeal is imperative?

I guess the discretionary type response we’re talking about is basically perfectly analogous to civil disobedience, except it’s the enforcement authorities who are being disobedient. Civil servant disobedience? They’re acting to undermine the technical operation of the state (according to the letter of the law), in order to bring about change in how the state operates (to bring it in line with the spirit of the law as those authorities understand it).

So ultimately the folks you’re arguing against, just want a strict code against civil servant disobedience, defined as broadly as possible, so as to limit agents of the state.

Except the breadth of definition of dereliction of letter-of-the-law-duty invites discretion. It’s impressive just how bad this is. We’re arguing about how much codified discretionary power agents of the state should have to punish agents of the state that have exercised undue discretionary power. I am really, really, really not sure they’d be willing to commit to supporting the kind of state that could and would enforce that code, since a state with a tremendous coercive apparatus to deploy on its own agents would extend that apparatus toward the general public in about, oh, three seconds. (Or at least, I imagine that’s what a libertarian would think of it, and I’m not inclined to dispute it.)

Even the strictest letter of the law can’t possibly make people be robots and not people, and no priors will ever save you from needing to appeal to people’s understanding of their own jobs and responsibilities. Appeals to the law work basically for the same reason that appeals to public sentiment do: if you can’t persuade the agent to feel an inclination to support you, then you intimidate them into supporting you by pointing out what they stand to lose, should they rule against you. Arguing before a jury/judge that the law doesn’t give them discretionary authority to declare your tax statements in violation of code X is just proposing, “other state agents will find you in contempt and disempower you if you attempt to tender and enforce this declaration.” Abstractly it just doesn’t matter hardly at all whether code X is super-objective-sounding or widely discretionary; that only changes your strategy for how you go about making that proposal as convincing and persuasive as you can.

novokant @89: “2. ex post facto laws ?!? – no way”

At least in Austria, there is only a strict prohibition of ex post facto criminal law. Ex post facto tax law is quite common, though there are cases in which it is considered a violation of the principle of protection for reliance on existing law (which is derived from the equal protection clause) and thus unconstitutional. (Perhaps ex post facto law that is supposed to apply to an already decided case is an example. I don’t know.) In short, we believe that there may be sufficiently good reasons not to protect the reliance on existing law (other than criminal law). I assume that this is not really a distinctive feature of the Austrian legal system and that most constitutional lawyers in the world hold this view.

“I fear Chris is part-way down the slippery slope at the bottom of which grovels (don’t know the US equivalents, if such monstrosities are possible) Richard Murphy.”

A very good example. And one I had in mind.

For example, Murphy has described, in a report for the TUC, income splitting through the use of a personal services company, as “tax abuse”. Something which we might assume is on that legal but get them for it anyway through administrative fiat side of the avoidance/evasion line that CB talks about. Similarly, the way in which national insurance payments are reduced through such a scheme is “tax abuse” and is part of Murphy’s estimation of the “tax gap” of however many squidelly billions he’s saying it is this week.

This is what the BBC aying the talent through services comanies furore was about, what Ken Livingston’s taxes were about and so on.

This despite Gordon Brown actively encouraging such incorporations (the first £10,000 profits of such companies were tax free for some years), despite Murhpy writing the article for The Observer telling everyone how to do this properly and despite Murphy and his wife running their affairs through a couple of such companies for much of the first decade of this century.

Katherine – enthusiastic agreement followed by a rueful sense that maybe it’s not as straightforward as that, concluding with slightly less enthusiastic agreement (but only slightly).

Salient –
Authority is discretionary authority, investigation is discretionary investigation, enforcement is discretionary enforcement.

True – discretion is inescapable. The thing about the legal system (as distinct from the regulatory and police ditto, as I rather arbitrarily defined them above) is that the exercise of discretion is out in the open – it even gets written down, and (in the form of Appeal Court rulings) feeds back into the future development of the law.

dsquared – I can see three possible solutions. One is for the tax inspector to issue an injunction prohibiting you from taking the piss in this way. I guess from Richard’s comment that tax inspectors don’t already have powers like this, but they’re not unknown – HSE inspectors and RSPCA(!) officials can do something similar. There are more and less ‘law-like’ ways to frame this kind of power: you could say, for example, that it could only be triggered by a previous court case (as in your example), and have breaches of the injunction held to a higher evidentiary standard than “the inspector says so, ergo you’re guilty”. Another possibility is a general-purpose “Don’t Take The Piss Out Of The Taxman” law, but if this was going to make prosecution any easier it would have to sit on top of a regulatory infrastructure – i.e. there would have to be people going around checking whether (in their judgment) the law was being breached, and the law would have to be drafted in such a way that “the inspector says you’re taking the piss” carried the force of a real threat. Or there’s what (according to Richard) actually goes on, which is essentially deterrence through selective enforcement – very much the same principle that’s historically been used to deal with people who were staying one step ahead of the law in the field of robbery with violence (“this is your car, is it, sir?”). The problem with *that*, from a rule-of-law point of view, is that the inspector’s authority needs to be as unchallenged as the police officer’s: when you find the misplaced comma in Honest Ron’s accounts you don’t want him coming back at you with a load of mens rea and in dubio pro reo, any more than the police do when they pull someone over for driving erratically. And that absence of legal accountability is potentially a problem in itself.

Shorter: the OP’s stance on regulation seems to be “let’s have some (more) of that (and we can work out the safeguards and the legal stuff later)”. My own view (which I’m currently writing up in two separate papers, socio-legal fans) is more like “we probably do need to have some of that, but for the sake of equity we need to think very very carefully about exactly what, where and how”.

The Court of Star Chamber was introduced as a method of prosecuting those too wealthy and powerful to be prosecuted through the ordinary courts, those able to bribe or intimidate jurors judges and witnesses. The Court sat in camera and the personnel of the court were themselves too powerful to threaten or bribe. It had the power to prosecute for anything it thought ought to be illegal whatever the letter of the law. Starting as sessions of the King’s Council it became a separate body in 1487. For several centuries it worked rather well, its lack of formal procedure and speed allowed it to bring powerful criminals to account. However after a few centuries it became an abusive instrument of royal tyranny, especially during Charles I’s period of personal rule and Parliament abolished it in 1641.

The idea of an anti-avoidance rule involves looking at a tax avoidance scheme and seeing whether the tax exemption is being used for the intended purpose of the allowance. The occasional use of ex post facto legislation can produce more practical certainty, there is no real point devising a clever scheme to use an allowance for a purpose for which it was not intended if the rules will simply be changed to re-establish the liability.

This practice, known as “sportsmanlike dumping”, has been around forever, and like the editors at bridgeworld.com who have discussed it many times (search there), I fail to see that it is wrong at all. Perhaps the tournament rules should have been written better than they actually were, but once they are written and published, anyone is morally free to take advantage of any “loopholes” they may contain, and to call that “cheating” is not only dishonest but dishonorable.

Substitute “UK tax code” for “tournament rules” and the same holds true, too. If UK law does not have a precedent saying so, they ought to borrow ours. Lex scripta, lex terrae.

Make the law general with lots of “whys” thrown in to help frame the problem they are trying to solve but leave it up to the courts and common law to hammer out the details so that maximum justice can be achieved. That seems like the most straight forward way to do this.

Mark Griffith @76: ” I have seen flat taxes attacked from the left, but never making the proviso that “at least flat taxes have the virtue of making avoidance more obvious and easier to prosecute”.”

Probably because they don’t.

The complexity of the tax code is in what is and isn’t considered taxable income, and all of the various possible credits, limits and exclusions.

Having 3-4 percentage levels instead of one doesn’t introduce any actual complexity beyond a bit of grade school math.

Note that most progressives would be solidly behind a tax reform that eliminated 90% of deductions and credits, dramatically simplifying the tax code, as long as it retained a progressive structure.