Contemporary Tax Policy

July 4, 2009

Contemporary Tax Policy, the Prophets and the Church

Luke R. Dyer

SS 902 Summer 2009

Biblical Prophets and Social Justice

Professor Jonathan Lawrence

Christ the King Seminary

Introduction

John Marshall, fourth Chief Justice of the U. S. Supreme Court, said “An unlimited power to tax involves, necessarily, a power to destroy” in a legal opinion issued in 1819. (Find Law, paragraph 11) The Compendium of the Social Doctrine of the Church says about tax policy:

“Just as clearly, it must be done intelligently and well. Just, efficient and effective public financing will have very positive effects on the economy, because it will encourage employment growth and sustain business and non-profit activities and help to increase the credibility of the State as the guarantor of systems of social insurance and protection that are designed above all to protect the weakest members of society. “ (Pontifical Council for Justice and Peace, paragraph 355)

Clearly tax policy has to be done with forethought and planning. Justice must be a part of this process, especially in financing the mechanisms to protect the poor and vulnerable. If it is not, we run the risk of repeating some sad events in history that had horrible consequences.

I chose tax policy because I believe it is an area that cries out for justice. In my opinion, public apathy, inertia and confusion are causing injustice in tax policy in the United States. This injustice is harming the uneducated and vulnerable members of our society. In general, I believe that most members of society think the issue is too complex for them to have any impact on it.

Biblical Texts

The prophets clearly were concerned with justice in tax policy.

Amos 5:11 says:

“Therefore, because you have trampled upon the weak and exacted of them levies of grain, Though you have built houses of hewn stone, you shall not live in them! Though you have planted choice vineyards, you shall not drink their wine!” (Senior, et al, page 1193)

Amos was telling his audience that the unjust application of power to tax excessively will be disastrous. Using force to levy too much from the weak will have bad consequences. It is possible that weakening the peasantry by levying too high a tax weakened the kingdom and allowed it to fall. In subsistence agriculture, if too much is taken, the farmers will not have the strength to continue raising crops. If too much grain is taken, the beasts of burden will starve, causing the farmer's family to have to do the work by hand. This reduces productivity causing a degenerating spiral requiring higher percentages of the crop to fulfill the tax levy. Over the course of a very few years a productive farm economy could be destroyed.

Micah 6:9-11 says:

“Hark! The LORD cries to the city. [It is wisdom to fear your name!] Hear, O tribe and city council, You whose rich men are full of violence, whose inhabitants speak falsehood with deceitful tongues in their heads! Am I to bear any longer criminal hoarding and the meager ephah that is accursed? Shall I acquit criminal balances, bags of false weights?” (Senior, et al, page 1208)

This refers to fraud and deceit. Criminal hoarding could mean collecting too much. Lying to collect taxes is repugnant to Micah. Falsifying measures (ephah is a unit of measure) by deliberate misrepresentation of units, false scales and false reference weights for balances is clearly a matter of justice denied. It seems that Micah is saying that the unit of measure was being altered in favor of the more powerful side of the transaction and that this was reprehensible and against the law. Asking God to permit these practices was like asking him to be a false judge and a co-conspirator in the crime. Clearly, Micah was saying that dealing honestly with the less powerful was required by the law.

Zephaniah 1:11-12 says:

“Wail, O inhabitants of the Mortar! For all the merchants will be destroyed, all who weigh out silver, done away with. At that time I will explore Jerusalem with lamps; I will punish the men who thicken on their lees, Who say in their hearts, 'Neither good nor evil can the LORD do.'” (Senior, et al, page 1218)

This is a warning against complacency. “The men who thicken on their lees: those who are overconfident because, like bottles of wine in which the sediment has settled to the bottom, they have remained at peace and undisturbed for a long time.” (Senior, et al, page 1218) Zephaniah is saying that doing things the same way they have always been done is not sufficient for justice. It is also an indictment of agnosticism. In other words, those who deny the power of God will be destroyed.

Modern Responses

The Catholic Church teaches that “Tax revenues and public spending take on crucial economic importance for every civil and political community.” (Pontifical Council for Justice and Peace, paragraph 355) It also teaches that:

“The use of certain categories of goods, collective goods and goods meant for common utilization, cannot be dependent on mechanisms of the market,[743] ¹ nor does their use fall under the exclusive competence of the State. The State's task relative to these goods is that of making use of all social and economic initiatives promoted by intermediate bodies that produce public effects. Civil society, organized into its intermediate groups, is capable of contributing to the attainment of the common good by placing itself in a relationship of collaboration and effective complementarities with respect to the State and the market. It thus encourages the development of a fitting economic democracy. In this context, State intervention should be characterized by a genuine solidarity, which as such must never be separated from subsidiarity.” (Pontifical Council for Justice and Peace, paragraph 356)

In other words, society can not rely blindly on the market or the State for justice. It is the responsibility of all of us working together in solidarity to promote the common good. Like many Church documents this states the case for every member of society having a responsibility to act justly, with forethought and prudence.

The principal of subsidiarity means that problems should be resolved at the lowest possible level of organization. An example would be if a family is hungry the local community should help feed them. If an entire community is hungry the district or county should help feed them. If famine strikes an entire district or county the State should help feed them. If an entire State is hungry the whole world should help feed them.

The Catholic Church's modern response revolves around the idea of the common good. “The responsibility for attaining the common good, besides falling to individual persons, belongs also to the State, since the common good is the reason that the political authority exists.” (Pontifical Council for Justice and Peace, paragraph 168) Taxes are required to support the state, and the reason the state exists is to promote the common good.

The Church also says the common good requires justice:

“To ensure the common good, the government of each country has the specific duty to harmonize the different sectoral interests with the requirements of justice[358]. The proper reconciling of the particular goods of groups and those of individuals is, in fact, one of the most delicate tasks of public authority. Moreover, it must not be forgotten that in the democratic State, where decisions are usually made by the majority of representatives elected by the people, those responsible for government are required to interpret the common good of their country not only according to the guidelines of the majority but also according to the effective good of all the members of the community, including the minority. (Pontifical Council for Justice and Peace, paragraph 169)

This statement clearly states that the common good is not the will of the majority and it is unjust for the majority to dictate what is good to the minority.

The Compendium of the Social Doctrine of the Church is a summary of Church teachings on social justice. It has over 1200 citations of Scripture, Church documents, histories and international law. Clearly, just tax policy is a prime concern of the Church, just as it was for the Biblical Prophets.

Conclusion and Reflection

Tax policy is one of the most powerful levers of government. Like all powerful levers it has consequences. Sometimes they can be intended, sometimes not. Those consequences can be good, bad, or good for some, bad for others. Hopefully the intentional consequences are good and the bad consequences can be mitigated by just and deft leadership. The good for some, bad for others consequences require analysis to make sure they are just. These questions are not easy to resolve.

In the United States, the fastest growing source of revenue is payroll taxes. These payroll taxes fund Medicare, Social Security, railroad retirement, unemployment insurance, and federal workers pensions. (Williams, paragraph 4) These taxes amounted to 7.5% of household income in 2006. The highest quintile paid 5.8 percent, the fourth quintile 9.6%, the third quintile 9.4%, the second quintile 9.2% and the lowest quintile 8.5% of household income. (CBO, Table 1) The reason the highest income group pays the lowest percentage in tax is because these taxes have a per person maximum. Supporting the unemployed and elderly is clearly a just goal, keeping with the prophets statements to deal justly with the powerless and the Church's teachings of a preferential option for the poor and disadvantaged. Is it just that the highest burden of taxation falls upon the three middle quintiles? Is it just that the lowest percentage burden falls upon the highest quintile? Zephaniah's prophecy against the status quo comes to mind. In my opinion, this theory of taxation needs analysis and change to make it more just. On the other hand, an argument in equity could be made that the benefits to the highest quintile are lower than the benefits to the middle three quintiles proportionately, and the current system is just.

Should tax policy be used to support policy goals? This is a very thorny problem without simple answers, partially because there are so many examples. One of the largest exemptions to personal income tax in the United States is the mortgage interest tax deduction. 57% of housing units in the United States are estimated to be owner occupied by the Census Bureau. (Callis, Cavanaugh, Table 3) The deductibility of mortgage interest from taxable income clearly benefits a majority, but Church teachings caution that the good of the majority is not necessarily the common good. There are many benefits to society found in a large homeownership percentage. Is it just that people who don't finance homes have a disadvantage in the tax code? If it is because they don't know how to manage money, should they be penalized further because of ignorance? If it is because they chose an itinerant profession? Because they inherited their home? I think this is a very difficult example of finding the common good, where people of good will can disagree. Personally, I do use the mortgage interest deduction when preparing my own income tax. My analysis for this paper makes me unsettled about this.

There are many other examples of tax policy being modified to support social policy. Some of them include tax deductions, exemptions and/or credits for ethanol production, creating business activity in designated areas (Empire Zones), sales tax exemptions for food, child care and rearing, investment tax credits, capital gains tax rates, municipal bond interest exemptions, alternative energy production and energy conservation. There are also the increased taxes on activities which are deemed not in the common good. Examples would include excise taxes on tobacco and alcohol and the proposed taxes on carbon emissions. This is only a small proportion of the possibilities, any one of which could require a massive research project to analyze. The key issue is justice. Is it just and fair to treat people inequitably based on their support or opposition to government policy? Is it just that a cigarette smoker has to pay a huge tax on tobacco? Is it just that a person who can afford a $30000 Toyota Prius can get credit on their income tax for doing so?

These questions make me uncomfortable. There are arguments both ways and room enough in the world for some jurisdictions to go one way and some the other. It seems to me that in a just world, taxes would be levied uniformly and justly, without regard to policy considerations. Policy discussions would center around appropriations and disbursements. There is plenty of room for injustice in the spending of public money to be sure, but the tax code must be seen to be fair and just, or it will fail, in my opinion.

Bibliography and Discussion of Sources

Callis, Robert R. and Cavanaugh, Linda B., (2009) CENSUS BUREAU REPORTS ON RESIDENTIAL VACANCIES AND HOMEOWNERSHIP, U. S. Census Bureau News, Washington, D. C., http://www.census.gov/hhes/www/housing/hvs/qtr109/files/q109press.pdf , accessed July 4, 2009.

The Census Bureau is charged by the Constitution to provide accurate data for public policy, and is believed to be reliable.

CBO ~ Congressional Budget Office, (2009) “Historical Effective Federal Tax Rates:

1979 to 2006” http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf , accessed July 4, 2009

This is a U. S. Government published website, used for data for policy discussions, believed to be reliable.

Pontifical Council for Justice and Peace , (2005) “Compendium of the Social Doctrine of the Church”, http://www.vatican.va/roman_curia/pontifical_councils/justpeace/documents/rc_pc_justpeace_doc_20060526_compendio-dott-soc_en.html accessed July 4, 2009.

This is a concise overview of the social doctrine of the Catholic Church prepared by a commission created by Pope John Paul II, published on the Vatican website, signed by Cardinal Angelo Sodano, Secretary of State. It is believed to be a reliable, peer reviewed, referenced summary.

Senior, Donald, Collins, John Joseph, Editors, (2006), The Catholic Study Bible, Second Edition, New American Bible, including the Revised New Testament and Psalms Translated from the Original Languages with Critical Use of All the Ancient Sources, New York, NY, Oxford University Press.

This is a Bible that is peer reviewed, academically prepared and with a Roman Catholic imprimatur, believed to be reliable.

Williams, Roberton, (2009) “The Numbers: What are the federal government’s sources of revenue?”, http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm , accessed July 4, 2009

This is a peer reviewed article published by the Urban Institute and the Brookings Institution, which references government data sources. It is used to indicate a trend, but is not absolutely reliable.

1 [743] is a footnote in the document cited. It references Cf. John Paul II, Encyclical Letter Centesimus Annus, 40: AAS 83 (1991), 843.