Logical Consequences

by David Dieteman

Paul Craig Roberts writes in the Washington Times that Manhattan District Attorney Robert Morgenthau has announced that corporations that reincorporate in order to move their legal residence from New York will be prosecuted for tax evasion.

Charming.

God, er, Morgenthau forbid that someone might vote with their feet concerning taxes imposed by the elite of the Empire State. (It’s not called the Empire State for nothing, you understand). And never mind that tax competition encourages economic efficiency and lower taxation.

Mr. Morgenthau’s plan is a logical consequence of the Northern view of the War Between the States, namely, once you’re here, you have no right to leave.

Consider the following. A corporation is a legal fiction. Corporate existence is recognized by the state (in its all-knowing, benevolent way) in order to allow private affairs to be organized in certain ways. Thus, there are corporations, limited liability companies, partnerships, joint ventures, limited partnerships, limited liability partnerships, professional corporations, non-profit corporations, and so on and so on. (And you wonder why there are so many lawyers in the world.)

At any rate, when a group of people decides to incorporate, they will typically select persons to serve as officers. These officers are assigned certain duties: to run meetings, to file papers, and so on. There may also be a board of directors, managers, and employees.

In short, different corporate forms have been created to allow people to organize their enterprises and their creative efforts in ways that they prefer.

So far, so good. Now for the hard part (if you are a district attorney).

Corporations are incorporated under the laws of a certain state. Pick a state, any state, such as Delaware. This former slave state has laws very favorable to corporations, in particular, as concerns the actions which may be taken by boards of directors and officers. Consider how many credit card offers you receive with return addresses in Wilmington, Delaware.

This is not an accident.

Suppose that you and two friends live in Manhattan. You want to sell tee-shirts with political slogans over the Internet: "I love Giuliani," or something to that effect. You incorporate as a New York corporation, that is, your enterprise is "organized and existing" under the laws of the State of New York, as they say in court.

And, after a year or two of brisk tee-shirt sales, you realize that you are spending rather more time working for the Empire State than for yourselves.

Over coffee, you decide that Delaware is a better place to incorporate. Or perhaps the Bahamas (you have been selling very many tee-shirts, and have branched out from the Giuliani line). And besides, the Bahamas has nicer beaches than Delaware (and abolished slavery much earlier).

If Mr. Morgenthau gets his way, you would be prosecuted for tax evasion.

Northerners and Lincoln-worshippers need not complain. The customer service desk has been moved to Attica.

Again, consider the following. The state of New York ratified the federal constitution of 1789. In doing so, New York explicitly reserved the right to secede if the newly-created "union" didn’t work out.

Yes, they got it in writing.

New York’s ratification provided:

The Virginians put it in writing as well.

Virginia’s June 26, 1788 ratification stated that:

And yet when the Virginia legislature voted to depart from the union, where were New Yorkers shortly thereafter? Shooting the Virginians dead by the thousands.

Perhaps New Yorkers thought that their private, voluntary associations (corporations) could vote with their feet and leave, that is, that they could secede from the state of New York.

No deal. If one believes that it was a crime ("treason") for Southerners and their states to leave the United States, must it not also be a crime for a corporation to leave the state of New York?

Interestingly, the tax historian and attorney Charles Adams has written two books – Those Dirty Rotten Taxes and When In The Course of Human Events – touching on the true motivation for the Southern secession: high taxes. Tom DiLorenzo’s recent book The Real Lincoln also addresses the tax aspect of the Southern desire for independence.

Should Mr. Morgenthau carry out his plans, it would appear that New Yorkers will be hung by the ropes they have made.

Funny thing about history: the consequences of human actions may take a long time to become visible.

June 29, 2002

Mr. Dieteman [send him mail] is an attorney in Erie, Pennsylvania, and a PhD candidate in philosophy at The Catholic University of America.

© 2002 David Dieteman

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