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Thursday, July 29, 2010

Sen. Kerry & Yacht-Gate: Learned Hand's Perspective

Kerry Following up on my prior posts:

Boston Globe op-ed, Keelhauling Kerry, by Jeff Jacoby:

No one is ever likely to mistake me for the president of the John F. Kerry Fan Club. I worked hard to prevent Kerry's election to the Senate in 1984, I have voted faithfully for his opponents ever since, and when he ran for president in 2004 I was impolite enough to describe him as a "tedious blister."

But I didn't join in the big horselaugh that everyone had at Kerry's expense after learning that he had avoided nearly half a million dollars in Massachusetts sales and excise taxes by keeping his new yacht tied up in Rhode Island. And I'm not gloating over his decision yesterday to put a stop to the media feeding frenzy by voluntarily sending the Department of Revenue a check for $500,000, "whether owed or not."

By mooring the yacht in Rhode Island, which abolished its sales tax on boats 17 years ago, Kerry appeared to have saved himself a huge amount of money. That was perfectly OK with me. Kerry may be a tedious blister, but even tedious blisters are entitled to hold down their taxes. Vice President Joe Biden calls it "patriotic" to pay higher taxes, but a far more sensible view was expressed by Learned Hand, one of the most admired and influential federal judges in American history." Anyone may so arrange his affairs that his taxes shall be as low as possible," Hand wrote in a 1934 opinion. "He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes." In a 1947 case Hand amplified the point. "There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant."

Granted, Kerry has never been averse to mere cant; his Senate career could be fairly described as an endlessly flowing river of the stuff. And Lord knows it is a temptation to cry "Hypocrite!" at a senator who is always ready to disparage tax cuts, yet deftly manages to cut his own.

But the temptation should have been resisted. What was the point of browbeating Kerry into paying higher taxes? Or rubbing his nose in his own history of laments about "tax-cuts-for-the-rich" and how "abusing offshore tax loopholes is wrong"? It would have been far better to seize the moment to make Kerry see that by arranging to enjoy his yacht without paying the Bay State's onerous taxes, he was acting not badly or selfishly, but rationally. Maybe Kerry could finally have absorbed the fundamental economic reality that human beings respond to incentives -- and when taxes are too high, taxpayers and their money have an incentive to go elsewhere. Even fabulously rich taxpayers like Kerry and his wife. ...

No one should be taking pride or pleasure in having keelhauled Kerry into forking over $500,000 he likely never owed. I'm no fan of the senator, but he showed good sense in seeking to keep his taxes low. If only he would do the same for the rest of us.

(Hat Tip: Al Golbert.)

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Tracked on Jul 29, 2010 9:10:43 AM

Comments

It's one thing to avoid taxes legally and another to conceal facts to evade them.

Kerry's yacht has been reported to have been in Massachusetts on several occasions within the first six months of purchase; thus, creating intent and making it subject to Massachusetts sales taxes. But, Kerry decided to "voluntarily pledge" to pay the "questionable" taxes only after the State sought the ship's log about where it had been docked. I don't think that's a situation covered by those judges' decisions in the Jacoby article.

Posted by: Woody | Jul 29, 2010 11:05:19 AM

Knew the 1st J. Hand quote quite well. Thank you for the second.

I think Jeff and I do not share the same attitude towards taxes (i.e., those with more should pay more; taxes should be progressive rather than regressive -- like FICA, sales taxes, and excise taxes on gasoline, etc. that the poor all pay even if they owe no income tax).

But the world has turned upside down, and in part it is due to overly aggressive deals for the wealthy in an environment where the IRS stuck its head in the sand after being at the whipping post for a couple of years in the late 90's and then schizophrenically turning around and pulling out the gun like Indian Jones on the guy with the knife and attacking any taxpayer action as "evil" or "bad" or "insert pejorative super-negative word here" that reduces the taxpayer's tax burden legitimately.

Too many step transactions. Too many integrated transactions. To many sham transactions.

One man's loophole is another man's benefit. What a huge loophole the child tax credit is (if you have no kids)! What a huge loophole capital gains tax treatment is (if you have to pay ordinary income rates).

Cheaters are cheaters, and the government should hold them to account. But if I invest $100 in a muni bond (fund) instead of a CD, am I exploiting a loophole in the tax system? What if I buy an I bond instead of put the money in a money market account (no OID on I bonds, so I can shelter the interest for who knows how long)?

It is time that some sense was exercised. Too many of the non-political personnel in Tax have made things political, or think that winning at all costs is the mantra of the IRS/DoJ rather than to thoughtfully develop tax policy reflecting on the judgments of people tasked to provide information on what the policy options are. Just sad.

Posted by: love the hand | Jul 29, 2010 5:35:44 PM

Read between the lines. Jacoby is just having some fun at Kerry's expense...

Posted by: Jack Walsh | Jul 29, 2010 8:05:03 PM