Google, Taxes and Morality

Posted: Oct 22, 2010 5:48 PM
Bloomberg reported yesterday that Google exploited tax loopholes to get around the United States' formal 35% corporate income tax rate and only paid a fraction of that over the last three years.
Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”

The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.

This prompted The American Prospect's Tim Fernholz to remark, "Uh, remember 'Don't be evil'?" Which, of course, spawned an intense twitter fight that resulted in Fernholz commenting,

While the government does do things with that money that could be aptly described as evil, that doesn't make non-payment a virtue. Taxes are part of our social contract with the state and underpin democracy; so long as policy is a product of a representative government, paying your fair share is a civil obligation, and thus virtuous.

This is a little more complicated than a 42-character argument, but for one, Fernholz ascribes views to me that I don't believe. In a vacuum, I don't believe that paying or avoiding taxes is virtuous. Since neither of us are anarchists, our answer likely depends on what government exists. To cite the famous example, Henry David Thoreau refused to pay taxes because he felt the status quo policies of the United States government at the time were unjust. Was Thoreau "evil" for refusing to pay what he considered an unjust regime?

Google almost certainly is not making any moral claims about the United States government's injustice. But Google is also not breaking any laws. Fernholz suggests that this doesn't meet Google's motto of "Don't be evil." This is strange. He's suggesting that Google voluntarily pay more than it is minimally required to because their taxes will support a nebulous public interest, or that 35% is their "fair share".

This gets into a lot of subjectivity about fairness in the tax system. Is it "evil" if Warren Buffett takes advantage of the loophole that allows his income to be taxed at the capital-gains, rather than the marginal income tax rate? This argument seems to say that anyone who isn't paying their "fair share," even if they're simply paying the minimum required by the tax system, should voluntarily write a check to the Treasury Department. Not to do so would be "evil."

The federal government does a lot of good things. But it also does a lot of bad things. Ascribing the paying of taxes to a moral public interest strikes me as confusing public interest and blind state worship. The pragmatic view with which to view the paying of taxes is to judge what kind of government we have. We have a government that could stand a lot of improvement. And that doesn't necessitate a moral value on taxes. Google's attempt to pay its minimum required taxes is neither good nor evil, It's just business.

UPDATE: On a related note, The Hill reported today that Google's campaign contributions have recently gone primarily to Republicans. Is that something else to label as "evil"?