פ Enron Plea Agreements, Game Theory, and the Stigma of Not Paying versus the Stigma of Stealing. I thought about the plea agreements of Mr. and Mrs. Fastow during Prof. Leandra Lederman's law school talk last Friday. She noted that although tax evasion does carry stigma in America, the stigma is much less than for other crimes. Someone who steals $10,000 from my house will carry greater stigma than someone who deliberately lies and pays $10,000 less tax than he owes. This, I think, is why the Fastow plea bargain has Mrs. Fastow pleading guilty just to tax evasion. The point of the deal is to have Mr. Fastow plead guilty to a serious charge and Mrs. Fastow plead guilty to a mild charge, but one that still carries some prison time. But why choose to retain tax evasion as the charge and drop the wire fraud and money laundering that were in the indictment rather than keep just wire fraud or just money laundering, with a degree of severity that would result in a 5-month sentence? I think one reason is that tax evasion would carry the least stigma for a given sentence.

It is interesting to think about what would have happened had the judge objected to giving Mrs. Fastow such a light sentence. He did balk initially, and his consent was necessary for the deal to go through, since it is the judge who fixes sentences, not the prosecutor. But had the judge objected, the prosecutor could simply have agreed not to prosecute Mrs. Fastow at all. The prosecutor cannot bind the judge to a small penalty, but he can prevent the judge from awarding any penalty at all. Thus, judicial obstruction would have helped Mrs. Fastow in the end, but hurt the prosecutor (whose favored outcome was a small but positive penalty) and the judge (whose favored outcome was a heavier penalty). The judge perhaps realized this; at any rate, the bargain ultimately went through.

Back to our original point, why does tax evasion carry less stigma?

First, tax evasion hurts an organization---the government-- instead of an individual. That, I think, is why embezzlement is treated more gently than burglary by our laws and norms, even though it involves not just theft but breach of trust.

Second, tax evasion is more a sin of omission than a sin of commission. I'm not sure how to say that, but let me explain. If John evades taxes, his fault is in not transferring funds from himself to the government rather than in transferring funds from the government to himself. It would seem worse, somehow, for him to take $5,000 from a cash register in a government office than to keep $5,000 that he owes the government.

This is related to the common law's treatment of breach of contract. If Andrew takes $200 from Bob's wallet, Andrew goes to jail. If Andrew refuses to pay a debt of $200 he owes Bob, Andrew does not go to jail, even if Andrew's liability is proved in court. The court will, to be sure, allow Bob to seize Andrew's assets to pay the debt, but nowadays (since we do not have debtor's prison), Andrew can sneeringly refuse to either pay or declare bankruptcy, and get away with it if he has no assets to seize. More important to our present point is that we would not regard Andrew as quite as bad as a thief.

This topic could use further exploration.

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