Legal vs. Illegal: U.S. News and World Report columnist Michael Barone, in a letter to Hoystory, makes the point much more clearly than I do that there is a big difference between tax "avoidance" and tax "evasion."

I just read your comments on the execrable Paul Krugman's column. Let me add one more point.

Krugman evidently does not know the difference between tax evasion and tax avoidance.

Tax evasion is when you violate the law in order to pay less in taxes. For example, you fail to declare income or you claim deductions which are not based on fact. Tax evasion is a crime and people go to jail for it. And rightly so.

Tax avoidance is when you obey the law in such a way as to reduce the amount you owe in taxes. For example, you may structure a business deal in a way that will reduce your tax liability. Tax avoidance is legal. The government can write the tax laws any way it likes, so if it writes it in a way that allows you to reduce your tax liability, there is nothing legally wrong with taking advantage of it.

Exactly. How many people buy a home and then decide not to write off the interest on the loan? By Krugman's standards, such a move would be tax evasion, because the person claiming the exemption is trying to avoid paying taxes.

Thugman--er, Krugman--uses the term "tax evasion" to describe companies incorporating in Bermuda. But he also uses the term "loophole." A loophole is what you call a provision of the tax code which enables a taxpayer to reduce tax liability in a way that you think is poor public policy. In other words, a loophole is part of the law. Evidently these corporations are acting entirely within the law. They are engaged in tax avoidance, which is entirely legal, though you might argue it's morally dubious. (But do you arrange your financial affairs so as to maximize your tax liability? I doubt it. I don't think anyone is under a moral obligation to do so.) They are not engaged in tax evasion, which is a crime. Krugman would like to make what they're doing a crime, and I suppose there's a policy argument for that. But he is, characteristically, overstating his case. Indeed, I think one could argue that he's libelling the corporations he's complaining about, by accusing them of violating the criminal law in one breath while conceding that they are not violating the criminal law in another. Accusing someone falsely of committing a crime, when it's obvious that you know they're not, is a pretty nasty libel.

Michael Barone

Only Bill Gates Sr. tries to maximize his tax liability (as evidenced by his campaign against elimination of the so-called death tax).

Krugman's main purpose was to bash Bush. Nothing more, nothing less. Krugman is nothing more than a semi-pro hatchet man. The "pro" part is because he's still writing for the New York Times, the "semi" part is a result of the quality of his columns.