Mises Wire

Tax Evasion: Goooooaaaallll!

While most of America remains blissfully unaware of what’s going on at Putin’s soccer tournament, aka World Cup 2018, the New York Times printed Gabriel Zucman’s piece merging soccer’s stars and tax evasion.

Superstars Ronaldo and Messi left Russia days ago but are the focus of Zucman’s ire for out maneuvering the taxman the same way each makes a living advancing a soccer ball with fancy footwork. Ronaldo, who makes a living playing for Real Madrid, owns up to evading 14.7 million euros (about $17.1 million) in taxes between 2011 and 2014. FC Barcelona’s Messi, meanwhile, was given a 21-month prison sentence (which was changed to $2.5 million in fines) for stiffing the taxman.

Zucman writes,

In both cases, the Spanish authorities found the players guilty of dodging taxes on the income derived from their image rights. These rights — which they, like many other professional athletes, had transferred to shell companies in exotic tax havens — account for a large part of their income. For the top players on the planet, such rights can amount to many millions of dollars a year.

Zucman, a professor of economics at the University of California, Berkeley, and the author of “The Hidden Wealth of Nations: The Scourge of Tax Havens,” doesn’t blame the players as much as the lawyers, accountants and tax havens for wooing the rich into strategies which enable the well-heeled to keep more of what they earn.

The Berkeley professor claims, “Sky-high incomes for star athletes are socially useless.” And to put a stop to this tax dodging, he believes, “revoking the licenses of the banks found helping tax dodgers and imposing sanctions against tax havens would cause the supply of tax evasion services to shrink.” Yikes.

Then there’s this doozy, “Once tax evasion was curbed, governments could tax top incomes at higher rates, for the greater good. And don’t believe anyone who says this would harm the economy — these claims usually don’t make much sense.”

You see Messi and Ronaldo get paid millions for their image and these are taxes they dodge by incorporating their images in entities which domicile in low tax jurisdictions.

Professor Zucman is of the view that Ronaldo or Messi don’t do anything for their image “so nothing bad would happen if [they] had to pay more. With a lower after-tax income, [they] would still score as many goals.” And government would have more money to waste. The ethics of taxation, the government’s taking of something that isn’t theirs, doesn’t dawn on him at all. “You don’t hurt anyone when you tax the Ronaldos of the world — you just make it possible for everyone to gain when they do.”

However, taxation is coercion, whatever the gains others may obtain from the use of this government force. Because Messi and Ronaldo have much more than most of us, doesn’t mean taking some of their money or other property by force is ethical or right.

“Insofar as coercion is effective, its features will always be the same. By disrupting the link between payment and receipt of service, compulsion veils the exact preferences of the agents who were dispossessed of their resources by allocating them according to the aggressors’ preference scales,” explain Philipp Bagus, Walter E. Block, Marian Eabrasu, David Howden, and Jérémie Rostan in the article “ The Ethics of Tax Evasion .”

What the two soccer stars are attempting to do is reconnect the link between service and payment, or “to unveil the taxpayers’ preference scales regarding the allocation of their own resources,” write Bagus, et. al. They continue,

Tax evasion critics [like Zucman] overlook the fact that taxation makes it impossible to determine who pays what and, consequently, it hides or overrides the preferences of the members of society. In the absence of a device able to reveal these preferences, tax evasion is the most natural and practical way for turning back to a more accurate distribution of resources (i.e., according to the contributors’ preferences). If we grant that preferences are better appreciated and satisfied by the subjects themselves, we must favor tax evasion (because tax evasion is a suitable device for unveiling and respecting the preference scale of the taxpayers within a society).

Professor Zucman might wonder how public goods would be paid for if not for taxation. In response, Bagus and his colleagues ask, “which types of public goods are necessary, in which quantity, and which unsatisfied needs of one individual imply the duty of another.”

Of course Berkeley’s Zucman would answer, “more, more and more.” He would argue the state’s coercion is just and does argue that the soccer players are acting unethically or worse. However, Bagus and company make the case that aggression is unethical in all cases. Tax evaders are merely engaging in nonviolent succession. They write,

If we take into account the risks that the tax evaders assume by breaking the law in order to grant themselves a tax discount and, implicitly, so as to direct their resources towards the ends corresponding to their own preferences and standards of justice, then tax evasion must be considered as a vote against government legitimacy. Instead of “voting with his feet” (Hirschman 1970)—as an emigrant would—a tax evader chooses a riskier alternative, to remain and to vote against government legitimacy by evading taxes.

Ronaldo and Messi take elaborate steps to keep money they’ve earned away from the government of Spain. Bagus and his colleagues point out the benefits of their actions. “Lacking a removal or reduction in tax levels, evasion will allow for an at least partial reinstatement of individuals’ rights of association, with resultant improvements in ethical considerations as well as economic efficiency.”

Whether you’re a fan of soccer or not, Ronaldo and Messi are heros, on and off the pitch.

Image Source: iStock
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