Great (and Not so Great) Moments in Tax Avoidance

When people figure out ways to keep the money they earn in their own pockets, rather than having it confiscated by government, I’m almost always happy.

• That’s because governments tend to waste money (should any of us pay for corrupt pork-barrel spending?).
• And it’s because government impose bad tax policy (is it fair to have governments tax us more than one time?).
• I also object to oppressive tax collection tactics (why do murderers have a presumption of innocence, but not taxpayers?).

With this bit of background, you can understand why I cheer when greedy politicians fail in their efforts to grab more money.

Here are three stories about tax avoidance. The first and third stories should make you smile, while the middle story is a tragic reminder of what happens when you mix bad tax policy with bad enforcement tactics.

Our first story is from the U.K.-based Times, which reports that English shoppers will travel all the way to Belgium to buy cigarettes.

Smokers — and smugglers — are flocking to a small village on the Belgian coast in search of cheap tobacco to beat the taxman. …The savings are substantial. A sleeve of 200 Benson & Hedges Gold costs £45 in Belgium, compared with £90 at a British newsagent; a 50g pouch of Amber Leaf tobacco is on sale for £5.65, about £11 cheaper than at home. Sticking to the recommended allowance of 1kg of tobacco and 800 cigarettes will save a smoker about £400 per trip. However, as there are no limits on the amount of tobacco and alcohol that a person can bring back from an EU country, some day-trippers are pushing that to 3kg of tobacco and 3,000 cigarettes, for combined savings of £1,350.

The folks making the trip resent the way their government (often using Orwellian tactics) is trying to pillage them.

Many smokers are angry at high UK prices and annual rises in duty. A grandmother from the West Midlands tweeted to the Conservative party: “I saved £3,000 for a holiday this year. I won’t pay UK tax to be bullied. Much cheaper to buy abroad.” …An estimated 80 coaches make the trip each week from different parts of the UK. The Times joined a service run by Excalibur Coaches, starting at Elephant and Castle in south London at 5.55am and joining a P&O ferry crossing at Dover. …“There are a lot of English here but the government has made cigarettes so expensive that, with this price difference, people are bound to be tempted.”

I’m glad for these people. The U.K. government has gone way overboard in their efforts to grab more tax. Notwithstanding what the politicians say, it’s not immoral to protect your income from rapacious and untrustworthy government.

There was no suggestion that anyone on the Excalibur coach broke any rules, but trippers are reluctant to speak openly for fear that they will draw the attention of Border Force officers, who are cracking down on the illicit traders.

The same thing happens in the United States, by the way. Excessive tobacco taxes by some state and local governments create big incentives for consumers to seek out cigarettes that are more affordable.

And our second story is about how government over-reaction can lead to horrifying consequences.

First, some background from A. Barton Hinkle, writing for Reason.

Thanks to New York’s laughably high cigarette taxes ($4.35 state plus another $1.60 in the city) and higher prices generally, a pack of smokes in New York City costs $14 or more. That creates a powerful incentive to smuggle smokes in from states such as Virginia, where you can buy a pack for a third of that price. …The robust cigarette smuggling irritates officials in New York, because they miss out on a lot of tax revenue.

And because politicians deploy resources to capture some of that foregone revenue, it leads to enforcement efforts that, in the tragic case of Eric Garner, led to a man’s death.

The writers at National Review have done a superb job of addressing this issue. Let’s start with some observations from Kevin Williamson.

…one must have a permit to sell cigarettes in New York, and New York bans the sale of so-called loosies, single cigarettes sold to those who lack either the means or the desire to purchase an entire pack at the going New York City rate of $12 to $14. …In a sane world, selling cigarettes would not be a crime. …That isn’t an argument for anything-goes lawlessness, but it is an argument that we have too many criminal offenses, and an argument that not everything that is a crime is a danger.

David Harsanyi has some similar thoughts.

Garner wasn’t targeted for death because he was avoiding taxes, but nonetheless, prohibitive cigarette taxes unnecessarily generate situations that make events such as this possible. …In the case of Garner, police were enforcing a law that has nothing to do with violence, not in the short or long term. …New York has by far the highest cigarette taxes in the nation: more than five bucks a pack. Unsurprisingly, the policy has spurred a black market. …The more profitable it becomes to circumvent taxes, the more dangerous this mini-prohibition will be. Garner was selling single cigarettes, incidentally. Does anyone believe that isn’t a waste of time for police and prosecutors?

Another National Review contribution is from Jonah Goldberg.

…you know what reasonable people can’t dispute? New York’s cigarette taxes are partly to blame for Eric Garner’s death. Senator Rand Paul of Kentucky made this point Wednesday night on MSNBC’s Hardball with Chris Matthews, and liberals have been freaking out about it ever since. …anyone with a level head should understand — and agree with — Paul’s point. When you pass a law, you authorize law enforcement to enforce it. …Without laws making cigarettes more expensive, Eric Garner would be alive today, period. …In the war on tobacco, like the war on drugs, if politicians will the ends, they must will the means. This is something that libertarians understand better than everyone else: The state is about violence. You can talk all day about how “government is just another word for those things we do together,” but what makes government work is force, not hugs. If you sell raw-milk cheese even after the state tells you to stop, eventually people with guns will show up at your home or office and arrest you. If you resist arrest, something very bad might happen. You might even die for selling bootleg cheese.

Heck, we’ve even gotten to the point that the bureaucrats at the Food and Drug Administration are conducting raids on dairies for the horrible crime of selling to consumers who prefer unpasteurized milk.

But let’s focus on what Jonah wrote about the state and violence. Charles C. W. Cooke also addressed that issue in his NR column.

Ultimately, “the State” is a synonym for “organized violence.” “If you refuse to pay your taxes,” Representative David Brat recently noted, “you will lose. You will go to jail, and if you fight, you will lose. The government holds a monopoly on violence. Any law that we vote for is ultimately backed by the full force of our government and military.” In consequence, Brat proposed, we should be careful about when and how that violence is utilized. Certainly, civilized nations need laws. But it is one thing to recruit armed men to prevent murder and rape and grievous bodily harm, and it is quite another to do so in order to regulate the manner in which cigarettes may be sold. …Was Garner killed deliberately? No, of course he was not. …Nevertheless, we should all be willing to acknowledge that Garner would never have been so much as approached had the city not wanted its pound of flesh in the first instance. Because there are consequences to all laws — however minor — it is incumbent upon us to ask if those laws are worth the risks that they yield. What, I wonder, would the anti-tax rebels who threw off the British Empire make of the news that a man had lost his life for peacefully selling a “loosie”?

By the way, the National Review writers openly state that the Eric Garner case involves a lot more than taxes. They point out that there are very big issues about race, the proper use of force, and the integrity of the justice system.

But everything they wrote about misguided tobacco taxation is also right on the mark.

Now let’s look at our third story, which is fortunately amusing rather than tragic. It was sent to me from the Public Secrets blog, and it deals with a Spanish theater is taking a rather unusual step to avoid that nation’s crippling value-added tax.

Crippled by colossal tax rates and falling ticket sales, the Spanish cultural sector is taking creative action to cut its tax bill, including one theatre which has changed its main business to pornography to avoid having to pay high taxes. …Theatre director Karina Garantivá said: “It’s scandalous when cultural heritage is being taxed at 21 percent and porn at only at 4 percent. Something is wrong”. Her company, which performs works by the “Spanish Shakespeare” Pedro Calderón de la Barca has decided to circumvent the new, punitive taxes by registering as a distributor of pornographic magazines – and is offering free performances. Punters buying €16 worth of hardcore-swingers magazine Gente Libre from the company receive a ‘free’ ticket to a performance of the highly regarded 17th century comic drama El Mágico Prodigioso.

You have to give them credit for creativity. I previously wrote about a Spanish theater that gave “free” tickets to customers who purchased low-taxed carrots for absurd prices, but I’m guessing the porn angle will be more successful.

Heck, I’m a cultural rube, and even I might be tempted to patronize the theater.

But not because of the porn. Instead, I admire the philosophical approach. Unlike a lot of artists, these folks in Spain apparently aren’t looking for handouts.

Garantivá said: “We don’t want subsidies, we are a private initiative. The best subsidies are fiscal measures that don’t prevent me from doing my work”. …Although the company is presently selling second-hand pornography to escape tax, they may produce their own to sell in future, as their present stock is only 300 magazines. Doing so would be “a stand against the government”, said the director.

And they’re even willing to produce their own porn as a way of saying “bugger off” to government. Given my libertarian principles, maybe I should…um…volunteer to help? Viva la libertad!

Though I won’t be waiting by my phone expecting a call.

All kidding aside, the common theme in all these stories is that people don’t like paying excessive taxes.

We may not all agree about when taxation becomes excessive, but I assume just about everyone will agree that it’s perfectly legitimate to avoid or evade the French tax laws that require some people to pay more than 100 percent of their income to government.

On the other hand, most of us also will have little sympathy for folks who try to avoid or evade when they live in jurisdictions – such as Hong Kong, Bermuda, and Switzerland – that are honest, well-run, and lightly taxed.

My proposal is that we have a simple and fair system like the flat tax so that people have much less reason to evade or avoid.

In the meantime, I’ll continue rooting for taxpayers who thwart the greed of the political class.

So three cheers for French entrepreneurs, American companies, Italian boat owners, California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York taxpayers, Bulgarian smokers, foreign cab drivers, New Jersey residents, Australian film stars, and everyone else who does their part to limit the amount of tax revenue flowing to governments.

P.S. There’s at least one tax avoider who doesn’t deserve any support. Actually, there are at least two of them. Make that three. Oops, four and five. Wait, we havesix. Seven. Eight…and an entire building of them…well, I think you get the point I’m trying to make.