Back during the 2008 presidential campaign, then-Sen. Joe Biden, the Democratic nominee for vice president said it was "patriotic" for people to pay more taxes, in an interview on ABC's "Good Morning America." But what if you don't have to pay more taxes legally?
Biden's reasoning was simplistic - that we all need to "jump in, time to be part of the deal, time to help get America out of the rut." But according to CNBC's Jim Cramer, based on legal precedence, the Internal Revenue Service encourages people to pay as little tax as possible, as long as it is within the boundaries of the seemingly endless U.S. tax code.
"The government has made it very clear in a series of tax rulings since the income tax started - and I learned this at law school - that it is actually well within your patriotic right to try and pay as little tax legally," Cramer said on CNBC's March 12 "Street Signs." "See, tax avoidance is actually part of the IRS - says listen tax avoidance, you can do it. Tax evasion is against the law. Tax avoidance, the IRS has always said listen you have every right to try and have tax avoidance. And believe me, I'm going to take advantage of it."
Cramer, who earned a Juris Doctor degree from Harvard Law School in 1984, explained the Biden notion of paying more in taxes being "patriotic" is a falsehood - at least up until now.
"The government has never said that it is your patriotic duty," Cramer said. "The government said just the opposite which is you have every right to avoid, every right to do it. In other words, it's almost like, listen we can encourage you. Whatever you can do, we want you to do. And anyone who thinks it is patriotic to go the other way is not understanding the history or actually the philosophy of the IRS, which it is fine to try to avoid."
But as Cramer explained, tax evasion is different than the so-called patriotic concept of tax avoidance. In U.S. tax courts, you are guilty until proven innocent. And if someone wanted to blow the whistle on tax evaders, who may use tax shelters like the Cayman Islands, it could be very lucrative.
"If somebody - is evading $3 million in their taxes, you should call the IRS on their tip line," Cramer said. "You can get a third. You can squeal to the IRS."
