Distinguishing Tax Avoidance and Evasion: Why and How

Abstract

Much public discourse about tax policy conflates tax avoidance and tax evasion as if they were effectively the same phenomenon. Going further, some tax justice activists and even some lawmakers have expressed a base frustration with the distinction between avoidance and evasion, concluding that both involve a violation of moral standards. The conflation and turn to morality might seem unobjectionable or even useful, given that both tax avoidance and tax evasion reduce state revenue which might otherwise be used to fund government functions and social programs. However, they are distinct phenomena. Tax evasion is wholly objectionable (with the exception of taxpayer responses to a wholly unjust tax regime). Tax avoidance describes a range of taxpayer behaviors, not all of which are wholly unobjectionable in the context of an otherwise coherent tax system. Tax avoidance and evasion can and should be distinguished, because they derive from different roots and require distinct regulatory responses.

This does not mean the public must be uninvolved in tax policy discourse surrounding appropriate responses to tax avoidance or evasion, as the case may be; the opposite is clearly true. The public seems uniquely suited to the task of demanding transparency in governance as a mechanism for monitoring lawmaking and addressing tax policy problems, including tax evasion and certain forms of tax avoidance. Transparency is, of course, an imperfect mechanism, but it seems to be the best hope for addressing a wide variety of governance-related failures, including failures in respect of tax (Christians, 2013a). Transparency forms the central core of all contemporary treatments of the problem of governance, and there is no reason why it should not also define the contours of thinking about what behaviors should be acceptable when it comes to taxation. For this reason, this essay concludes that the problem of distinguishing tax avoidance from tax evasion presents a base case for demanding transparency in both tax information and tax lawmaking in the service of pursuing tax justice.