Discover more from Overcoming Bias
The Shame of Tax Loopholing
In the movie Bubble, a woman visiting a man’s room waits until he goes to the bathroom, and then searches for cash, which she finds and keeps. Abstractly I understand why someone might do this, but I would feel completely ashamed to do it. It is not just that such theft is uncommon or illegal, or that I had a connection to the victim; I would feel ashamed even if it were legal, if most everyone did it, or if the victim were a stranger. And I suspect most people feel this way.
I feel the same strong sense of shame about tax loopholing – the act of working to find a way to present myself on my tax form so that I pay less taxes. The very idea revolts me, and I just can’t bring myself to do it. But here I seem to be unusual – most people I know seem proud to find better tax loopholes.
As an economist, I can argue the consequences are similar – in both cases you use effort to transfer resources from other people to yourself. Yes, perhaps you need the cash more than they do, or perhaps there is some "evolution in action" benefit of moving resources to the clever from the not-so-clever. But usually such gains don’t seem worth the effort expended to create such transfers, or to prevent them.
I feel similarly about the idea of buying a bigger car to protect my family in a collision. If small cars crashing together create the same casualties as larger cars crashing together, then buying a bigger car to avoid casualties is in essence working to move casualties from your family to other families.
To the extent that an act’s shame should be tied to its consequences, being ashamed of taking cash from a stranger’s wallet, but not of tax-loopholing or big-car-protecting, seems biased to me. But perhaps shame is just not about the consequences.
Added: My complaint is mainly about lost effort, not so much the transfer itself. The main effect of your efforts to pay less taxes is that others pay more later, via tax rate increases. Any required adjustments to your behavior are unlikely to be social beneficial. Any resulting change in tax emphasis will have little social benefit. The resulting government spending reduction will be small compared to your gain, and most of that spending pays for services most people value. It will not spark the great libertarian revolution, and your feeling less like a sucker will come at the expense of others feeling more like a sucker.
Also: The same applies to buying a taller car in order to see past other cars.