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

by Chris Bertram on August 2, 2012

Discussion of those badminton players seems to divide into two camps: those who think it is fine to exploit the letter of the law to gain strategic advantage and therefore can’t see a problem, and those who don’t. Bracketing off for a second the embarrassing fact for those in the first camp that there does actually seem to have been a rule against deliberately losing, it’s plain that this is just a particular instance of a more general syndrome. There are people who devise and employ elaborate schemes to evade or avoid (I never know which is which) their taxes whilst staying just within the law. There are bankers who stay technically within a literal interpretation of the banking regulations, whilst engaging in dubious practices which undermine the regulator’s intention. There are employers who try to evade workplace regulations by reclassifying their workers as independent contractors. There are states which harp on about the technical details of the laws of war as they happily murder civilians. Well sometimes we need to punish the technically innocent but morally culpable. And it helps encourager les autres to internalize the ethos behind the laws rather than seeing them as being just an inconvenient system of traffic control.

Rule-of-law fetishists, Hayekians, and the like tend to think this is just appalling. 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. 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. (On the tax front, the UK’s plan to introduce a General Anti-Avoidance Rule is designed to punish just these characters.) 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.

{ 113 comments }

1

Manta1976 08.02.12 at 10:56 am

Laws are not given to us by the gods, they don’t come with a moral authority.

Of course, some practices are immoral, but that is independently of whether they are legal or not.

2

Charlie W 08.02.12 at 11:04 am

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.

3

Nick 08.02.12 at 11:05 am

I am not convinced. Giving prosecutors discretion over how to interpret ambiguous legislation has become a sort of “get out of jail free card” for legislators in a variety cases, and increasingly liberal political theorists. Jeremy Waldron leans on it a lot when defending “hate speech” laws, for example. The results of this approach are playing out in London this week (more and more laws rely on CPS discretion for enforcement and the CPS simply cannot cope): http://heresydungeon.blogspot.co.uk/2012/07/the-trial-of-simon-walsh-at-kingston.html

For tax law, in particular, you have a complex of regulations that are, in fact, designed to help certain insiders save money or, more defensibly, to encourage particular forms of investment that are perceived to be socially beneficial. Passing regulations that encourage particular activities and then punishing those that take advantage of them if they are “bad people” or something amounts virtually to entrapment. A general “anti-avoidance rule” would be much more defensible if the laws were clearer to start with.

Also, there are alternative ways of dealing with misuse of the letter of the law than enforced regulation. There is always social opprobrium, boycotts and divestment etc. This is a more proportionate response to people who are merely exploiting the letter of the law, rather than breaking it, than an executive bludgeon.

4

Charlie W 08.02.12 at 11:06 am

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.

5

John Quiggin 08.02.12 at 11:11 am

Australia in the 1970s was faced with a High Court that favored tax avoiders/evaders (the distinction became moot, because many ‘avoidance’ schemes relied on an unprovable bit of evasion) to the extent that taxpaying became optional for those with a sharp lawyer. Mostly under conservative governments, there were a series of responses that eventually brought the problem under control

1. A general anti-avoidance provision

2. Extensive use of retrospective legislation to annul the effects of High Court decisions. That is, the Court would find some technical error in the tax law, and the government would respond by changing the law, backdating the effect to before the Court’s decision. Black-letter lawyers screamed, but the result was more certainty, not less.

3. Changes to the “Acts Interpretation Act”, which effectively required the Court to interpret the law in line with the statements made by the government (most importantly in second reading speeches) when it was introduced.

These haven’t been perfectly effective, but they killed off a flourishing industry and made “tax avoidance” (previously presented as the legal alternative to tax evasion) a dirty word. Even those who practice it now prefer terms like “effective tax planning”

6

Chris Bertram 08.02.12 at 11:16 am

_The results of this approach are playing out in London this week _

Hard to see how that case illustrates the point made in the OP at all.

7

tomslee 08.02.12 at 11:24 am

Passing regulations that encourage particular activities and then punishing those that take advantage of them if they are “bad people” or something amounts virtually to entrapment.

Nick puts his finger on the difference between the tax racket and the racquet racket. Increasingly, I think the use of the tax code to encourage certain kinds of pro-social behaviour is a fools game and should be abandoned. To go back to sports, there is a silly argument here in Canada – partly from the “fitness industry” – to make gym memberships tax-deductible in order to encourage healthy living. Bus tickets are also tax deductible. Using the tax system to fund the state coffers and to promote pro-social behaviour is like having badminton rules that ask people to win, but not to be ruthless about it – and then it gets very difficult to disqualify anyone.

8

Chris Bertram 08.02.12 at 11:29 am

@tomslee – whether the tax code should be used to promote pro-social behaviour or not is really beside the point here. Point is re people getting out of paying the tax they should have paid by ingenious redefinitions of activity etc. Zap them, I say!

9

Nick 08.02.12 at 11:32 am

The parallel is:

Law says “don’t engage in bad tax practices, we will let this agent decide what constitutes bad tax practice”

Versus, law says “don’t look at bad porn, we will let this agent decide what constitutes bad porn”

The strategy is draft the prohibition broadly, more broadly than you actually intend to prosecute, then allow a specialist to whittle down prosecutions to what you (they) think is the real intent of the law. Zap the bad people. I suppose it has some efficiency benefits and I suppose it is all that many legislators are actually capable of doing. But it leads to remarkably illiberal outcomes.

10

Navin Kumar 08.02.12 at 11:37 am

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.

11

Navin Kumar 08.02.12 at 11:48 am

By the “the solution”, I mean “to make sure the enforcers are genuinely democratically accountable and removable.”

@John Quiggin

the result was more certainty, not less.

How’s that, exactly?

12

Chris Bertram 08.02.12 at 11:56 am

Nick: this is a side issue, but when you say”

bq. Versus, law says “don’t look at bad porn, we will let this agent decide what constitutes bad porn”

You seriously misrepresent things. The law actually says quite a lot about what constitutes extreme pornography, as you know perfectly well. The indeterminacy here surrounds what constitutes “serious injury” to a person’s anus, breasts or genitals. That’s the kind of question that you have medical expert witnesses to testify about, and which a jury then gets to decide. The law may be a bad law, but not for the reasons you stated here.

13

Tom Hurka 08.02.12 at 12:04 pm

Mickey Cohen, Canadian Deputy Finance Minister in the 1970s, had a concept of “breathing space.” The idea was that if you write tax law too strictly, people will cheat, going to great lengths to hid their income underground or offshore. Whereas if the rules are loose enough that they can lop a little tax off at the margins, they’ll feel they’ve gotten away with something, which is psychologically important to them. It’s as if people want to cheat a little, but strict rules will lead them, counterproductively, to cheat a lot. According to some, Cohen’s approach was pretty successful.

14

Chris Bertram 08.02.12 at 12:11 pm

_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._

That’s hardly the right way to think about it though. The law ( _ex ante_ ) says that employers have certain duties towards employees. The employer then tries to evade those duties by defining the workers as independent contractors. We empower the regulator (and the courts) to look at the reality of the relationship and to disregard what are transparent attempts to use a legal device to thwart the legislature’s intentions.

See for example the recent UK lap dancing case:

http://www.thelawyer.com/eat-rules-in-favour-of-stripper-in-stringfellows-dispute/1012355.article

15

Armando 08.02.12 at 12:18 pm

” Well sometimes we need to punish the technically innocent but morally culpable.”

I’m not sure I would describe myself as a ‘rule-of-law-fetishist’, but I am extremely uncomfortable with the idea that a person might be prosecuted on the strength of moral culpability decided by lawyers, police whoever. In the case of tax avoidance, I can see that there is a stronger case for it, as the technicalities are potentially overwhelming, but as general principle its hard not to be extremely suspicious of it; that a citizen who strives to stay within the law can still fall foul of it on moral grounds. There are obvious questions as to whose morality we enforce, and on what authority, but perhaps I am jumping too quickly to dystopian visions of what the above quote conjures up for me.

Its not that I want to protect tax avoiders at all, its that if I want to protect the right of citizens not to be prosecuted arbitrarily as a general principle, I need to be doing it for people who I might not approve of, otherwise there is no principle involved. (Yeah, I’m happy for morally upright to be free from harassment, as is any despot.)

The law (in the UK) is already far too broad when it comes, for example, to the right to protest, that establishing a precedent for prosecuting beyond the law is worrying. Then again, maybe it is feasible to keep this all about tax and I’m worrying too much about a slippery slope.

16

chris 08.02.12 at 12:24 pm

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.

17

Cheryl 08.02.12 at 12:41 pm

I like the example of “Extensive use of retrospective legislation” because it saves taxpayers money. Instead of having extensive committees or reviews of tax law it uses the brains of tricksters against them. The idea of tax refunds for gym usage (rather than membership) is not silly if you counted the cost of obesity to the health system. The example of badminton is a case of the fish rotting from the head down. If Olympic administrators and sports bodies acted with integrity at all times I doubt athletes would behave like that. The penalties should be stronger – a country known to cheat should have its members ship reduced in future years in correspondence with the amount of cheating, even if the cheating was discovered long after the medal was won (age in gymnastics for example).

18

Neville Morley 08.02.12 at 12:43 pm

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.

19

Freshly Squeezed Cynic 08.02.12 at 12:43 pm

the simple fact that they’re human and that you don’t know how they’ll rule

This assumes that there would be little to no pattern at all in how regulators choose to interpret the regulations; I don’t accept that that would be the case.

20

JDC 08.02.12 at 12:50 pm

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

21

Charlie W 08.02.12 at 12:54 pm

#15: I am extremely uncomfortable with the idea that a person might be prosecuted on the strength of moral culpability decided by lawyers, police whoever.

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.

22

JDC 08.02.12 at 12:54 pm

Spelling can be competitive however . . .

23

Armando 08.02.12 at 12:57 pm

Therefore we’re arguing about how much flexibility any given system should include

The ability to prosecute people who stay within the law seems like an obvious line to argue about, rather than just another indistinguishable grade of flexibility.

24

Armando 08.02.12 at 1:08 pm

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.

25

Charlie W 08.02.12 at 1:28 pm

The key point is that if you pay up, you are no worse off than one of your peers who didn’t attempt avoidance. If no punishment is involved, we should’t talk about tax avoidance and remedies for it in terms of punishment for a moral shortcoming. You might be morally off base if you avoid tax, but the state is not judging you for that. And what underpins the state’s legitimacy in presenting you with a tax bill in the first place is another matter; it looks to me to be irretrievably bound up with the legitimacy of the state in general. Is that really what you want to bring into question?

26

Tim Worstall 08.02.12 at 1:35 pm

“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.

27

C.P. Norris 08.02.12 at 1:37 pm

I support the application of this type of flexible law enforcement against people I dislike and oppose it against people I like.

28

Charlie W 08.02.12 at 1:46 pm

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.

29

Bloix 08.02.12 at 2:03 pm

It is perverse to create a system in which you give people an overwhelming incentive to act one way and then make rules requiring them to act in another way.

That’s what happened in the badminton situation: the sport’s overseers decided that a round-robin would create more matches for each team (better for players and spectators) than the usual single elimination, but apparently did not understand that in doing so they created an extremely powerful incentive for teams to lose strategically. The team that lost would have a good shot at silver or bronze; the team that won would almost certainly be eliminated before the medal round.

It should be obvious that when you design a system for human activity, you should align rules and incentives as much as possible. In the badminton case, the incentive was set up in a way that severely punished the players for abiding by the rules. That’s an intolerable situation.

30

Aulus Gellius 08.02.12 at 2:06 pm

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

31

MattF 08.02.12 at 2:08 pm

I think that in a working political system, there’s going to be some back-and-forth between bureaucrats and political executives . So, when the cute kid’s lemonade stand gets shut down by a bureaucrat because it doesn’t follow health/safety regulations, the local executive can declare that the police are not going to arrest anyone, and the kid can go back to selling lemonade. This is the way real political systems work.

In the Olympics, it’s all bureaucrats, and no one actually has ‘executive’ discretionary power, so you get into muddles like the badminton dilemma.

32

John 08.02.12 at 2:12 pm

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.

33

tomslee 08.02.12 at 2:17 pm

Aulus Gellus: those badminton players.

34

Tim Worstall 08.02.12 at 2:18 pm

“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.

35

No one 08.02.12 at 2:27 pm

Just to point out that in the case of badminton, at least, it might be worth seeing this in a broader context. The Chinese and Koreans are quite well known for engaging in this kind of behaviour in badminton tournaments in order to achieve long term goals (eg., where two teams from the same country play together, allowing the weaker team to win, gaining a certain number of points so that they can qualify for more prestigious tournaments). So while it’s true that in the case of the Olympics there were specific incentives to lose strategically, this is part of a long term pattern of behaviour. On ‘those badminton players':
http://www.bbc.co.uk/sport/0/olympics/19072677
As far as I’m aware this is the first time that the Badminton World Federation has actually stamped down on such behaviour, in spite of persistent complaints that they do so. I’ve never been sure why: it may just be that deliberately losing is just hard to prove.

36

Sonic Charmer 08.02.12 at 2:31 pm

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.

37

Anderson 08.02.12 at 2:42 pm

Didn’t all this get hashed out on this blog re: players who “flop” in football/soccer?

38

Pete 08.02.12 at 2:57 pm

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.

39

Tim Worstall 08.02.12 at 3:00 pm

“a piece of regulatory legislation (Dodd-Frank) was democratically passed two years ago but the bureaucrats have yet to fill in the details”

This is a particular bugbear in the weird metals world over the conflict minerals regs.

Background: certain mines in Central Africa are controlled by bloodthirsty types who enslave people to work them.

Other mines in Central Africa producing the same minerals are not controlled by bloodthirsty etc.

The aim is to set up a tagging and tracking system which will allow one to distinguish. You can still buy from the bloodthirsty etc but you must say so. And obviously, consumer type actions (boycotts, shaming) will lead to manufacturers who use the products of the minerals declining such from bloodthirsty etc.

This might not work so well with tungsten carbide blades for mining machines but certainly will for tantalum capacitors for Apple’s iPhones**.

Not a bad idea really*.

Except: the law’s been in for two years now is it? No one wants to buy those conflict minerals but many would like to buy the non-conflict from the same areas. Thus all would like the tracking/tagging system to be operational. It isn’t. Because the detailed rules aren’t in place yet. For example, no one as yet knows whether this applies to scrap or not (recycling of scrap being a hugely important part of the minor metals industry. And it does make a difference if you have to declare using scrap from what might have been conflict minerals five years ago when the now scrapped equipment was first made).

End result is not Central Africa prices are higher, non-conflict materials from the area cannot be sold. Tens of thousands of miners out of a job.

Well done.

* There was a much better idea floated then rejected because it was too simple. There are only 8 or 9 tantalum (or coltan if you prefer) refiners around the world. And it’s quite simple to fingerprint tantalum ore. I actually know the German guy who ran the program. You can do a quick analysis and tell which mine any particular batch came from (the trace elements act like a fingerprint. This much Ta with that Th and the other Sc and look, low Eu and high Tb, that’s that one in Mozambique sorta thing). So instead of the monstrous system that seems to be coming out of Frank Dodd you could have had a bloke at each of nine factories taking a sample then checking it against his list as to source.

But much more importantly whatever it was that Frank Dodd implemented it should have been immediate. Not with a two and counting year hiatus.

** To the point that one Congolese activist has been demanding that iPhones, or at least one or two of them, are built from minerals known to come from the conflict areas but also known to be conflict free. On the grounds that only a company like Apple is large enough to bang heads together and get the damn system working.***

*** Sorry, channelling D 2 a bit there with footnotes.

40

MPAVictoria 08.02.12 at 3:07 pm

“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.

41

Anarcissie 08.02.12 at 3:22 pm

What we need is a precise set of rules for bending the regular rules. Morally, of course. Or for some other good purpose. And then if that doesn’t work, we can create a precise set of rules for bending the rules about bending the rules. And so on.

42

rea 08.02.12 at 3:23 pm

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

43

Phil 08.02.12 at 3:44 pm

I am extremely uncomfortable with the idea that a person might be prosecuted on the strength of moral culpability decided by lawyers, police whoever

M3 T00, but I’m not entirely clear what Chris is talking about here.

At present, it seems to me, we’ve got two parallel systems. There’s the legal system, which works on the basis that there are published and uniform laws, and if you break one of them you get prosecuted. The police and Crown Prosecution Service are in charge of whether you get prosecuted or not; if you are, and if you don’t plead guilty (and that’s a big if), there is then a lot of arguing about justification, mitigation, moral culpability and so on. (Neville – Hayek did indeed see the law as a system of clear and determinate rules. Most people see it as a system of rules which is embedded in argumentation, and consequently changing and developing all the time.)

Then there’s the regulatory system; this also works on the basis of published laws, but laws which are drafted for specific sectors. Regulators are in charge of whether you get prosecuted or not – and if you are you’re quite likely to go down, as regulatory laws aren’t big on mitigating factors and generally exclude any reference to moral culpability. Everyone knows this, giving regulators the power to demand compliance under the shadow of prosecution. And in that shadow is where most regulation actually gets done. If regulatory laws were read literally the prisons would be groaning with tax-evaders and fraudsters; as it is, regulatory prosecutions are the exception, and they’re generally seen as a sign that regulation has failed.

The thing is, the regulatory approach in taxation isn’t remotely new. The arms race between the lawyers who draft the tax laws and the lawyers who help evade it isn’t a sign of the need for regulation – if anything it’s a pathology of regulation, which creates the expectation that legal problems can be solved by managerial means. (I’m itching to throw in a Batman reference here.)

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

Um. One of these things is not like the other. If they’re over the legal boundaries, prosecute ‘em. If they’re only over the moral boundaries, all you can legitimately do is heave a sigh, draft a new law and get ‘em next time round.

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jb 08.02.12 at 3:46 pm

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.

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Phil 08.02.12 at 3:49 pm

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.

Meant to add – I find this quite breathtaking. Over the last decade or so there’s been a massive accumulation of power by regulators of different kinds, as well as a kind of evolutionary radiation of regulatory approaches and instruments into different social niches, notably counter-terrorism and the “anti-social behaviour” industry. The general trend is towards more regulators with more power. Endorsing it, on the basis that all we have to do is make them accountable, is a bit like voting for an Enabling Act on the grounds that we can always democratise the new regime later on.

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Phil 08.02.12 at 3:51 pm

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.

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Matt McIrvin 08.02.12 at 3:53 pm

I was trying to figure out why it was that Bertram’s last paragraph disturbed me so much. And I think it’s just American history: in the US, laws drafted to give enforcers very broad personal discretion, vagrancy laws for example, are essentially always used against powerless minorities. Democratic accountability counts for nothing, because the majority either don’t care or actively want innocent minorities punished, often on the grounds that they must be guilty of something. Some form of rule-of-law fetishism, such as demonstrated in the civil-rights and civil-liberties decisions of the Warren Court, is the only defense they’ve had.

The idea of something like a general non-evasion clause actually being used against rich and powerful bastards seems like a fantasy here.

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C.P. Norris 08.02.12 at 3:55 pm

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.

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JP Stormcrow 08.02.12 at 4:04 pm

And I think it’s just American history: in the US, laws drafted to give enforcers very broad personal discretion, vagrancy laws for example, are essentially always used against powerless minorities.

Yes, this is pretty relevant to my initial reaction as well; discretionary/selective enforcement has a long history of going the other way. And specifically in the realm of taxes you have things like the Nixon’s attempt to suborn the IRS audit process tpo political ends.

I’m afraid C. P. Norris has it right at 27/1:37.

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Ben Alpers 08.02.12 at 4:04 pm

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.

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Jim Harrison 08.02.12 at 4:06 pm

Is the problem really an absence of flexibility on the part of the policing authorities?

In our system, prosecutors have so much discretion that they effectively decide what is legal and illegal. Part of the problem is that statutes about obstructing justice and lying to authorities are written so broadly that almost everybody falls into the net, but the more obvious problem is that people who are politically inconvenient to prosecute are immune to the laws. Thus Holder, not a judge or a legislature, legalized government torture. The more common case is tax law where, as the political scientists Jeffrey Winters pointed out in his book Oligarchy, billionaires are subjected to a different tax code than millionaires because it is simply impossible to effectively beat their legal teams and political clout and the IRS doesn’t try. Just as above a certain pressure and temperature there is no difference between a liquid and gas, above a certain level of wealth, there is no difference between tax avoidance and tax evasion.

Taken literally, the rule of law is a superstition, almost a form of animism. Laws don’t interpret or enforce themselves. That doesn’t make ‘em meaningless or valueless, but it’s people that make or don’t make justice and you can’t get around that fact by any technical gimmick.

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bianca steele 08.02.12 at 4:07 pm

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.

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The Iron-Tongued Devil 08.02.12 at 4:08 pm

I haven’t read through all the preceding comments, so my apologies to anyone who has already made these points.

First, please don’t be too casual about using sports as a metaphor for society. Sports are inherently, constitutively competitive. Society is more complex.

Second, it’s possible to be unimpressed both by the badminton players and by the federation. In fact that’s my view. The players showed an excessively narrow understanding of what they were up to. But the federation evidently created a perverse incentive for them to do so. If you need a rule against throwing matches, that tells you there’s something wrong with your sport. It’s not an answer to the people who say there’s something wrong. I hate tax cheats, and I also hate the legislatures and judges who have abetted them. There’s nothing inconsistent about that.

Which brings me to my third point, which is that the issue here isn’t the letter of the law versus the spirit. The issue is how to structure a competition so that the competitors who pursue it will thereby generate otherwise desirable effects. In this case, you want the pursuit of a gold medal to produce exciting, well-played, entertaining matches, not farcical races to the bottom. In market competition, you want the pursuit of private profit to lead to socially desirable outcomes. The latter has been a problem in recent decades, as markets have been modified to correspond to fantasies about their “natural” state instead of being actively regulated to produce desirable outcomes.

The tension between “letter” and “spirit” interpretations of law always has been and always will be with us. Excesses are possible on both sides. In a general way, we’re all familiar with the rich white guy who gets away with a serious crime because after all he’s not “really” a criminal. The issue we need to work on is how to structure competitive markets so that they produce socially desirable results (to the extent that we want to use market mechanisms at all). That’s also what the badminton federation needs to work on.

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C.W.W. 08.02.12 at 4:20 pm

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.

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piglet 08.02.12 at 4:40 pm

I can’t believe I’m the first to make that observation but here it is: The OP is completely nuts. Bertram apparently would do away with both “innocent until proven guilty” and “in dubio pro reo” and would give “democratically removable” (i. e. politically bendable) enforcers “discretionary power to zap the bad people” .

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bianca steele 08.02.12 at 4:42 pm

“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.

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js. 08.02.12 at 4:42 pm

I’m completely with you on the tax evasion/avoidance issue and on related issues in the political realm. In fact, I’d go so far as to say that the “rule-of-law fetishists” are willfully or not) missing a basic conceptual point about the need for the interpretation and application of rules. Which I think is also what Neville Morley is getting at in 18.

And although this last point of course applies to rules that govern a sport as much as to anything else, my instincts here go in a completely different direction. Or rather, it makes sense to me to set up rules and allow (encourage?) their interpretation such that players and teams can strategize to what is reasonably their overriding goal: winning the gold/tournament/overall competition, etc. To take a different but I think related case: a soccer team that rests some its best players/fields an explicitly defensive side in their last round-robin game when they’ve already advanced. Yes, it’s not particularly fun and you might sneer at them a bit, but would you really want to penalize this sort of thing?

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piglet 08.02.12 at 4:44 pm

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.

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Chris Bertram 08.02.12 at 5:05 pm

_The OP is completely nuts. Bertram apparently would do away with both “innocent until proven guilty” and “in dubio pro reo”_

No actually (at least for the presumption of innocence). Suppose tax scheme X is clearly illegal, so clever accountants devise scheme Y instead. The anti-avoidance law rule then get invoked to say Y is illegal. The perp then has the chance to pay up. If they don’t, and the Revenue go to law, the principle “innocent until proven guilty” will apply at any trial.

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mpowell 08.02.12 at 5:22 pm

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).

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Chris Bertram 08.02.12 at 5:24 pm

@Phil

_ The general trend is towards more regulators with more power. Endorsing it, on the basis that all we have to do is make them accountable, is a bit like voting for an Enabling Act on the grounds that we can always democratise the new regime later on._

Who endorsed a trend? The OP said nothing about what the general level of regulation should be. What it did say is that, at any level, you are going to have this kind of conflict and that the solution then is not to proliferate further rule and sub-rules and definitions (because that’s just an arms race) but 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 (as the badminton players, corporate tax evaders etc are). The bit about democratic accountability was a bit flip on my part, but the other obvious safeguard is where judges get to examine whether the ad hoc extension of the rule was reasonable or not.

(Another case: illegal drugs. Set aside the general question of whether they should be illegal for a sec ….. 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” ?)

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RobW 08.02.12 at 5:39 pm

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.

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Phil 08.02.12 at 5:41 pm

Suppose tax scheme X is clearly illegal, so clever accountants devise scheme Y instead. The anti-avoidance law rule then get invoked to say Y is illegal. The perp then has the chance to pay up.

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” ?

These examples have something important in common. Let’s say that we don’t actually know whether what they’re talking about is genuinely a small variation on something illegal, designed to make it technically legal, or just, well, something that isn’t illegal. What does the argument in favour of official discretion look like then? And bear in mind that in general you and I *don’t* know one way or another, not having the technical knowledge.

Drug law is an interesting example; with precisely this situation in mind, the list of banned substances is kept up to date through ‘schedules’, which can be turned round much quicker than substantive amendments to an Act of Parliament. At any one time, there is a list and some things are on it and others not – and I don’t think ignorance of the law should be an excuse for police officers any more than it is for the rest of us.

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guthrie 08.02.12 at 5:46 pm

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

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Watson Ladd 08.02.12 at 6:10 pm

Chris, I’m a bit confused by that example. Tax scheme X involves evasion, so accountants come up with scheme Y which merely avoids taxes. Does Y get judged to not reduce a tax burden or does it become illegal? Moreover, tax disputes in the US are not criminal trials. Rather the taxpayer pays the tax amount, then sues saying “The IRS charged me too much”. If you don’t pay you go to prison, but you can always pay and then sue. (There is also the tax court).

Arguably saying “transactions that reduce taxes and have no other effect are illegal” renders borrowing money by corporations illegal. I doubt that is how the principal is either worded or applied.

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Armando 08.02.12 at 6:11 pm

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.

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Zeb 08.02.12 at 6:20 pm

Why would anybody assume that legislators/regulators are any more moral/altruistic than tax avoiders? If they are given more discretionary power, won’t they only abuse it for their personal gain/to help vested interests?
In Germany, we have a so called “Ministererlaubnis” (ministerial permit): if the cartel office (our anti-trust authority) decides that a merger cannot take place because it would stifle competition (or for whatever reasons), the minister of economics can override them at his discretion without having to give any real, falsifiable reasons: e.g. he can simply say it’s good for the economy at a whole and that’s reason enough. Guess who benefits: those who are well connected.
Example: years ago this was granted to E.ON, a huge electric utility provider. Coincidentally, the then-minister of economics Werner Müller had worked at the company that later became E.ON.

And if we’re talking about democratic accountability, well, how can you achieve this?
Are we talking about the fact that years later, people can vote for somebody else?

I remember reading Lawrence Lessig’s “Republic, Lost” not so long ago: One of his points was that we’re drowning in transparency, and that we know pretty much about who does what and receives what from whom. And the thing is, voters don’t care because it’s all too complicated. They’ll still vote for an obviously corrupt (Lessig’s talking about the completely legal kind of corruption) government if it has (or pretends to have) the same political alignment they have. Last sentence is my point, not Lessigs.

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Watson Ladd 08.02.12 at 6:20 pm

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.

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Chris Bertram 08.02.12 at 6:21 pm

For those coming late, I recommend John Q’s comment @5.

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Bruce Wilder 08.02.12 at 6:22 pm

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.

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Armando 08.02.12 at 6:24 pm

As an example to complement Chris example:

Suppose I want to park in a busy city, and I go to Street A, which is residents only parking, so I park in Street B, parallel to Street A, but which has no such restrictions. Would we feel that a parking ticket could be justified on the grounds that Street B is essentially the same as Street A? (After all, parking violations involve judgement calls, and all the road signs and official designation of residents only zones is extremely cumbersome.)

I’d guess that almost no one would accept that as fair, essentially because they can see themselves potentially falling foul of it.

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Chris Bertram 08.02.12 at 6:26 pm

_I suppose we can ask Chris why Buproprion is legal_

I suppose you can, but you won’t get an answer. The post is about the general unrealisability of the rule-of-laws-not-men ideal, not about the detail of American tax or drug law about which I know little and care even less.

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Bruce Wilder 08.02.12 at 6:31 pm

I kind of messed up some sentence structure.

I meant to argue that public regulators may need to make simple, bright-line rules, as a way to maintain their detachment from “private” play. Discretion is corrupting.

Complexity in the public rules is a whole ‘nother topic, and may well be highly desirable, to defeat the invention of private strategies, which have the effect of subverting the institution completely. Political rules for voting might be a prime example; too-simple plebiscites are the tools of dictators, for a reason.

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Keshav Srinivasan 08.02.12 at 6:42 pm

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.

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Sebastian H 08.02.12 at 6:49 pm

“The post is about the general unrealisability of the rule-of-laws-not-men ideal, not about the detail of American tax or drug law about which I know little and care even less.

Quite. The general point may not bear up on examination of actual examples, so by all means we wouldn’t want to talk about actual examples.

The problem is one of balance.

Noticing the that rule-of-laws ideals aren’t perfect is not the same as saying that they fail to have a very important insight. Rejecting their insight on that basis, and seeking to replace it with discretionary schemes (with ‘democratic’ ‘accountability’, scares quotes around each separate word absolutely intentional) is engaging in some sort of excluded middle fallacy.

Noticing that rules can’t possibly cover every situation, and that therefore *some* discretion must be allowed, is not nearly the same thing as saying that giving enforcers lots of discretion is a brilliant idea.

A huge part of the experience of Western law has proven that giving enforcers enormous amounts of discretion is more likely to fuck over poor people and disfavored minorities with the very occasional chance of getting a rich person here or there. So arguments about discretion being employed against rich, well connected people, being deployed into a general argument about the utility of discretion, is probably missing an important thought in the process.

(Even just sticking to the tax example, anyone want to guess whether or not such a principle as applied in the US would be more likely to catch one millionaire or 5,000 waitresses?)

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Mark Griffith 08.02.12 at 6:56 pm

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.

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NickT 08.02.12 at 7:17 pm

Leaving aside the tax evasion debate for the moment, I think the real issue with the badminton story is that what the players were doing was effectively match-fixing, which is contrary to the spirit of any competitive sport (and, generally, the relevant codes of conduct). You can’t ask people to pay money to watch a game – billed as competitive – which is being rigged by its participants. This clearly was a case of attempted match-fixing, despite claims that the players were thinking strategically about the overall event, although it is somewhat unusual in that both sides were trying to rig the game. Yes, the players are guilty here – but so are their managers/coaches – and, perhaps most important, so are the officials who have connived at this behavior, especially by Chinese badminton players, over the last year or so. Ultimately, the bulk of the blame should go to the guardians of the game who have not fulfilled their duties. How will they be sanctioned, if at all?

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Armando 08.02.12 at 7:31 pm

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

79

Stephen 08.02.12 at 7:34 pm

Bloody hell, I find myself agreeing with Piglet@55. The OP is completely nuts. When Chris writes “people who devise and employ elaborate schemes to evade or avoid (I never know which is which) their taxes whilst staying just within the law” he is demonstrably off his rocker.

People who employ schemes (elaboration irrelevant unless you assume that is in itself proof of guilt, in which case may God forgive you, I won’t) to avoid taxes while staying within the law are acting legally to avoid taxes. As I do when given a chance, like most people.

People who go beyond the law are evading taxes, which is illegal. As I don’t, like most people.

Vision of Chris in court: “Your Honor, I accept that the defendant’s behavior was legal, but I submit it was only just within the law, and therefore I would ask this court to regard it as entirely illegal.”

Query how long before Chris would be disbarred, or whatever the phrase is.

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.

80

Jeff R. 08.02.12 at 7:36 pm

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.)

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Stephen 08.02.12 at 7:54 pm

Chris@68 recommending John Q @5:
” the government would respond by changing the law, backdating the effect to before the Court’s decision. Black-letter lawyers screamed, but the result was more certainty, not less.”

Look, I may have misunderstood this somewhat, but I can’t see an overall increase in certainty. Before the Court’s decision, the matter was possibly uncertain. After the decision, everyone thought it was certain, though of course it could have been non-retrospectively changed , with equal subsequent certainty, by subsequent legislation. But if the Government then changes the law, backdating the effect to before the Court’s decision, we have no certainty at all. Who is to say how far into the past the Government’s power to backdate changes may go? You, and everyone else, may have thought a Court decision from five, ten, twenty, fifty years ago was certain, but backdated legislation could prove you wrong. And why does John Q assume that backdated changes in legislation must always go in the direction he favours? If one Government can backdate legislation one way, why cannot another backdate a further change in the law in the other way? Who then can have any certainty about the law that will be applied, retrospectively, one way or another, to their present actions?

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Phil 08.02.12 at 7:58 pm

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.

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bianca steele 08.02.12 at 8:09 pm

Re. “bad faith”: my own concern would be that “bad faith” is determined by reference to a possibly implicit set of rules even in the case where discretion is supposedly permitted. Look at the article linked a few weeks back by the woman working in a warehouse: she would apparently be considered to be in bad faith if she claimed at any time, for any reason, that she was unable to perform some task. At least if she went on to give an argument why she was correct.

This sounds like what Phil is saying just above, but I can easily imagine a situation in which argument implies rules (and vice versa) so the worker is attempting to appeal to rules, in contravention of the standard understood by the supervisor which is “just recognized” by him without verbal, or simplistically rule-based and potentially sharable, recourse to argument and the like.

84

NickT 08.02.12 at 8:12 pm

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?

85

Matthew L 08.02.12 at 8:16 pm

In USTA tennis we have the rules and the “code”. The code is needed because in most matches, even lower tournaments you keep your own score and make you own calls (Is that similar to taxes?).
From USTA website,

Since we have a book that contains all the rules of tennis, why do we need a code? Isn’t it sufficient to know and understand all the rules? There are a number of things not specifically set forth in the rules that are covered by custom and tradition only. For example, if you have a doubt on a line call, your opponent gets the benefit of the doubt. Can you find that in the rules? Further, custom dictates the standard procedures that players will use in reaching decisions. These are the reasons we need a code.

As an architect, I am confronted with plenty of rule interpretation. The most disparate and complex or poorly written rules are zoning codes. Some cities have sections on intent, some don’t. The codes with clear intent and a review process seem to be the hardest for retailers to circumvent by only doing their base prototype, but instead they are forced adapt to the community standards if they want in the market. They are sometimes the simplest codes (but not the simplest process).

Thanks for the thread, I never thought of taxes through this lens.

86

Manoel Galdino 08.02.12 at 9:31 pm

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

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Phil 08.02.12 at 9:57 pm

In my (brief) time as a union rep, I was involved in re-negotiating job descriptions, and came up against the perennial “and such other duties as may be appropriate” clause. Could we not take that out? we asked. We’ve just been through this exhaustive process of identifying and enumerating the duties that are appropriate to the role, after all. Good Lord, no, said management, we couldn’t do that – you couldn’t have people refusing perfectly reasonable requests just because they weren’t written down, that would be ridiculous. OK, we take the point, but couldn’t we limit it a bit? Say, such duties as may be appropriate in the area of information technology, for posts in IT? Otherwise you could have us sweeping the floor and tell us that was ‘appropriate to the role’… Good Lord, no, said management, that would never happen – we wouldn’t ask you to do something totally inappropriate, that would be ridiculous.

Discretionary authority and rule-based authority are both ways of telling people what to do; the difference is that rules can also be binding on the people with the authority.

88

dsquared 08.02.12 at 10:10 pm

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?

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novakant 08.02.12 at 10:26 pm

For those coming late, I recommend John Q’s comment @5.

1. sounds nice but the devil is in the details

2. ex post facto laws ?!? – no way

3. challenging the independence of the judiciary and making them subservient to the executive ?!? – no way

90

Watson Ladd 08.02.12 at 10:36 pm

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.

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SamChevre 08.02.12 at 10:45 pm

d-squared @ 88
It seems like what you are talking about, under US Tax Law, would come under the “under any substantially identical scheme” test–which will get you thrown out of Tax Court with extreme prejudice.

I was reading JQ @ 5 to be describing a legal procedure that goes like this: The court ALLOWS the tax deduction in Johnny Vegas And The Room Full of Computer-Controlled Lathes; the legislature then passes a law saying “That’s not what we meant” that applies not only to the sequels, but the the case that the court has already decided.

That seems sharply contrary to the very long-standing prohibition on ex post facto law.

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Richard J 08.02.12 at 10:50 pm

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.

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RJB 08.02.12 at 10:56 pm

Wow, maybe I missed it, but I can’t believe no one has quoted this:

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands: Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”

–Honorable Learned Hand, U.S. Appeals Court Judge, Helvering v. Gregory, 69 F.2d 809 (1934)

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bianca steele 08.02.12 at 11:50 pm

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.

95

Andrew F. 08.03.12 at 1:02 am

Chris, your argument assumes three things:

1) The “intent” of a law will be sufficiently clear for “enforcers” to determine the intent, and to extend and expand the letter of the law where (necessary? Desireable?) To fulfill that intent.
2) The “purpose” of the law will be sufficiently clear in the same manner.
3) The legislators enact a purpose and intention when they enact a law.

Intent and purpose can be fairly difficult to assess, particularly when the legislature numbers in the hundreds and the law is highly complex. One can frequently find multiple and contradictory statements of intent and purpose from various legislators who voted for the law. Toss in the rest of the legislative history of a complex law and the issue can become incredibly murky.

As to the third item, because of the variety of intentions and purposes that can accompany the passage of a law, it seems more practical and appropriate to hold that a law consists of the law as written, since the written language is what was actually voted upon and passed.

Certainly, sometimes clever folks will use the letter to avoid the spirit – but so long as the legislators are “genuinely democratically accountable” there’s no greater problem here than relying on the same democratic accountability to check the ways of errant enforcers in your system.

There’s also an unpleasant effect of encouraging legislators to pass laws that can rely on another branch to expand the law as necessary or desired: legislators will pass more ambiguous and vague laws.

96

Curmudgeon 08.03.12 at 2:30 am

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.

97

S.M. Stirling 08.03.12 at 3:14 am

Apparently there are still people who think regulatory capture is avoidable.

Or that the people who are best at making/keeping money won’t also be the best at gaming the system.

It’s sort of sad.

98

Salient 08.03.12 at 6:25 am

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.

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Keshav Srinivasan 08.03.12 at 7:08 am

Does anyone have any thoughts on my post #74?

100

Christian Hiebaum 08.03.12 at 8:40 am

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.

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Christian Hiebaum 08.03.12 at 8:45 am

Sorry, novAkant.

102

Tim Worstall 08.03.12 at 9:14 am

“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.

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Chris Bertram 08.03.12 at 9:21 am

I must say that to be bracketed with Richard Murphy by Tim Worstall was an honour I wasn’t expecting this morning!

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Phil 08.03.12 at 10:46 am

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”.

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SamChevre 08.03.12 at 10:57 am

Or there’s what (according to Richard) actually goes on, which is essentially deterrence through selective enforcement

It happens in the US too, and I think that calling it deterrence through selective enforcement is tarring a good practice (selective enforcement a la Kleiman) with a really dangerous and problematic one, which is really using the cost of fighting a completely unjustified prosecution as a punishment. (“You aren’t guilty, but we can make you spend years and millions proving it–so pay us to go away” is not a threat I think the police should be able to make.)

106

Brett Dunbar 08.03.12 at 2:45 pm

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.

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leederick 08.03.12 at 8:55 pm

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible.”

I think that’s the basic problem, which we see over and over again – in the UK you’d be citing the Duke of Westminster. When judges are given an option to pick a side on avoidance, because of a lack of guidance from statute, they come down on the side of inherited wealth simply because a lot of them come from it. That of course gets fossilized in the law and is entirely why we need a GAAR to force a change in attitude.

“2. ex post facto laws ?!? – no way”

Why not? The basic problem is if people know the tax base and rules in advance, they can use their capital to seek wealth not by productively creating value, but by artificially exploiting the tax system. Surely it’s much more efficient if they can’t play wasteful games because they don’t know the rules, and have to instead try and use their money productively.

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John David Galt 08.04.12 at 2:14 am

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.

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Bill Jones 08.04.12 at 3:47 am

“there does actually seem to have been a rule against deliberately losing”

Care to cite it?

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Nelson 08.04.12 at 4:14 am

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.

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Chris Bertram 08.04.12 at 6:53 am

Hmm. I seem to be coinciding with Arnold Kling somewhat. I realise that this may not be a good sign, but here’s the link

http://econlog.econlib.org/archives/2012/05/principles-base.html

112

Michael Sullivan 08.04.12 at 11:45 pm

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.

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Peter T 08.05.12 at 4:35 am

Simple laws are hard to interpret simply, so leave lots to discretion. Complex laws are usually inconsistent, so leave loop-holes or conflicts requiring discretion to interpret and resolve. As the OP and John Q say, it’s an intractable problem.

But hasn’t anyone on CT been on the inside of a regulatory or enforcement decision? They involve first some authority deciding that some behaviour is worth noticing, and then deciding how much effort and trouble it will likely cost, and then estimating whether there are available resources to deal with it, given other priorities, and then these decisions being revisited as the affair progresses – usually first by higher management, then by other bodies (prosecutors, court administrators, courts and so on). The safeguards are not so much in how the law is written, but in the multiple checks, the limited resources available and the attitudes of most of those involved. Most crimes don’t get officially noticed, most that do don’t get charged, most of those charged don’t get prosecuted, and, of course, a fair number of those prosecuted are acquitted. There is an inevitable huge amount of discretion built in to the process, and always was.

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