What’s “Just” about Taxes?

March 5, 2008

Everywhere, it seems, tax is in the news. At least two U.S. presidential candidates have signaled their intention to raise taxes on higher-income earners and specifically target oil companies if they are elected.

In Venezuela, Hugo Chavez is threatening to heavily tax any food company making “excessive profits” — whatever that means — as his “21^st century socialist” economy falters in its ability to perform even basic tasks such as feeding Venezuelans.

Across the Atlantic, Germany is proposing “special” taxes on bank-transfers to Switzerland, Liechtenstein, and Monaco. Britain’s government recently suggested increasing taxes on non-domiciled foreigners, and only retreated after a public outcry. Even the Organization for Economic Cooperation and Development (OECD) has weighed in, recently telling Monaco, Liechtenstein, and Andorra that their low tax rates are anti-competitive. Oddly enough, by “anti-competitive,” the OECD means that these countries’ tax-rates are lower than everyone else’s.

Another bizarre development is that some American clergy and politicians now quote the Bible to justify raising taxes — as if the Bible expressively mandates high tax-rates.

Of course, there’s nothing intrinsically immoral or unjust about low tax rates for individuals and companies. It’s telling, however, that numerous interest groups, NGOs, and politicians treat any proposal to lower taxes as if it was the equivalent of homicide. Perhaps even more disturbing is the fact that most people in developed countries — especially Western Europeans — have simply become habituated to governments taking over 40 percent of their annual incomes.

In 1913, the highest American federal individual income-tax rate was 7 percent on $500,000. Today, the equivalent tax-rate is 35 percent on $357,700. It is not only the rate increase that is remarkable. One dollar in 1913 had considerably more buying power than a 2008 dollar. In other words, most Americans today pay more tax on money which itself is worth much less than it was 95 years ago.

In his Wealth of Nations, Adam Smith said that taxes were necessary to enable governments to perform three essential functions. One was national defense. Another was public security and the administration of justice. The third was public infrastructure needs, though Smith envisaged that governments could contract much of this to private companies.

Today’s reality, however, is that taxes are raised for purposes that go far beyond these limits. Many politicians, for example, do not even bother to disguise the fact that they regard high taxes as a means for massive wealth-redistribution and financing social engineering. The fact that high taxes destroy incentives for entrepreneurs and businesses to create the wealth that gradually improves everyone’s material well-being — including the poor — appears to escape many politicians’ attention. Likewise high tax rates are often justified by the need to fund government-provided social services that families, charities, private associations, and churches are invariably much better at performing.

Then there are the negative moral effects of high tax rates.

First, high taxes undermine respect for property rights. If the state routinely takes, say, 40 percent of peoples’ incomes, then we should hardly be surprised that some individuals become rather casual in the way they treat others’ private property. Second, the existence of high taxes helps facilitate a culture in which some political parties basically tell people that, in return for their vote, they will effectively transfer large amounts of others’ property to them via taxation. That’s surely a mild form of corruption.

Third, high taxes create what might be called “occasions of sin.” When the state takes such large amounts of people’s income, is it any wonder many are tempted to minimize the law’s effects through tax avoidance or actually break the law through tax evasion?

Lastly, high taxes have a distorting effect on how we think about our investment decisions. They encourage people to put their money into schemes that reduce taxes rather than activities which create more wealth for everyone.

Not surprisingly, low tax rates help to resolve many of these problems. Empirically, it’s well-established that low taxes diminish the rate of tax avoidance and tax evasion. This improves the quality of rule of law, a key ingredient for economic growth. An incidental effect is that those countries which have lowered their individual and corporate tax-rates in recent years, mainly through implementing flat taxes, have actually experienced increases in government revenues.

Low taxes also release more capital for productive investment, especially by reducing our need for tax lawyers and accountants. This benefits everyone over time, including the poor, by increasing living standards.

Capital is also freed up for private charity. When people keep more of their disposable income, they can be more generous instead of abdicating their responsibilities for their neighbor-in-need to politicians and bureaucrats. Lower taxes are not only just and economically smart; they’re good for our moral health as well.

Dr. Samuel Gregg is research director at the Acton Institute and author, most recently, of The Commercial Society (2007).

Comments

Edwin Morcar:

Here are some questions i have:

1. If we grant the principle that the state has a peremptory right of expropriation - aka taxation - of any of an individual's property, why may not the state by the same principle take as much as it likes of his property, even all?
Granting this principle, why may not the state take away those properties called your body, or your life?

2. Who is to say what is a "low" rate of taxation?
In Sweden members of the government think a 90% rate of income taxation is low.
Since the right of private property is not recognized there - since taxation and private property are mutually exclusive - who is to say otherwise?

3. Suppose a group of people A, abetted and supported by group B who stand to benefit, claims to have the legal power to forcefully take the property of unwilling group C, what is the source of this power?
Of course, we all know that members of the United States Congress, say, or of the Swedish Riksdag are godlike creatures, since this must be why they can successfully assert this power.
Nevertheless, most of them seem to be just ordinary humans and so one must wonder from whence their godlike qualities come.

James Pentland:

re: Of course, theres nothing intrinsically immoral or unjust about low tax rates for individuals and companies.

Dear Dr. Gregg:

If robbery is immoral or unjust, why is only a little bit of it not immoral and unjust?

Chee Kin Tang:

Dear David

Thanks very much for responding to my earlier post. You and I agree that capitalism has helped to raise all boats (point 2 in my post and para 3 in yours). And as Michael Novak has written, for those who complain about capitalism, what alternative model do they have in mind that has performed better? In the Fall 2007 issue of Religion and Liberty (Vol. 17, No.4) , Rev. Sirico argued very well that mandated giving does not come from the heart, and that the gospels do not promote the idea of public authorities enacting welfare programs.

We are all agree on the principles but my issue is that of practical realism i.e. a question of relating truth to the circumstances. I have highlighted that giving by Christians (according to Barna Research) has not been all that encouraging (less than 10% of household income). It is much less with non-Christians.

Therefore, my earlier question of whether giving from the heart (to quote Rev. Sirico) would increase if we lower taxes remains unanswered. It would also be nice to see how what giving rates are in low tax countries by Christians and non-Christians. Are they more generous?

Am I against high taxes to run welfare programs? Are public programs less effective? Yes to both questions, but I am also afraid of throwing the baby out with the bath water. I fear unintended consequences because while the bible is true and the biblical worldview speaks to every area of life, it is not a step-by-step manual and I am afraid the Fall is also very real and that it inhibits me from laying whole of that perfect truth and that my wisdom falls short of comprehending the best way of implementing these biblical mandates. In other words, honest and sincere believers can disagree with the means.

There may be research out there that would allay these fears of mine and that what Dr Gregg wrote is true i.e. indeed with more disposable income, people can be more generous . If there is evidence and studies out there, please feel free to point them out to me. Thanks again. My e-mail is cktang68@yahoo.com

David Thayer: dbt@turnkeyadvisors.com

I take issue with Chris Manes for a variety of demonstrable reasons, but I at least thank him for reading and responding to articles that are not aligned with his own point of view. We would all do well do engage in such behavior.

Rather, I direct this note toward Chee Kin Tang by simply saying that charity is not the only measure of a country's ability to provide for its poor. You are right to ask the questions that you do, but I would only add in response that free markets in themselves provide for the poor, and the freer the better. It would be nice, for instance, if the newly wealthy Irish gave more to charity now than they did when they were poor (a mere generation ago); but, free markets and low taxes in and of themselves have lifted many thousands there out of poverty, in a way that charity could only aspire to do on its own.

Capitalism, despite the unconscionably bad name it has been given, is its own form of charity. One need only look to Japan, Taiwan, Singapore, Russia, Ireland, and the countries of Eastern Europe for examples of how free markets have greatly reduced poverty -- miraculously sometimes within only a decade or so. And this tends not to be culturally defined, as can be seen in the tragic 20th century experiments of the Koreas, the Chinas, the Germanys, and the Vietnams: one side free and rich, the other side enslaved and poor.

Low taxes are thus, in my view, tantamount to charity.

J. Ankrom: gordian01@yahoo.com

Please know I am trying to be charitable in my words. Just stop throwing bible verses around attempting to promote your notion of Government coerced Charity.

I often struggle finding the right approach toward those who rant about the importance of taxes being paid to governments in order to promote their idea of fairness and other so-called christian principles. Allusions to 'billionaires' who need to pay more is nothing but an excuse to covet their neighbor's wealth. To argue the 'gospel' has some overt revelation regarding the payment of taxes in order to promote a greater good is simply not true. To posit the gospel, and the commandments are somehow fulfilled through government programs is just silly.

The Law of God is summarized by two simple commandments: Love God with all your heart, soul, mind and strength; and love your neighbor as you love yourself. Period. Desiring to see your neighbor plundered in the name of God is just not loving your neighbor as you love yourself. No one likes being plundered. "First give everything you have to the poor, then follow me." (That means you. Not your neighbor.) This notion of arguing the application of the Bible and the Gospel to governments, societies and statist programs is just too absurd. The Gospel is applied by men. Individuals acting in faith, according to the grace afforded them. To force feed charity through legal theft, coercion and tyranny is hardly the achievement of any kind of justice or fairness and it is certainly not the fulfillment of God's love.

Government is established to, "Uphold good and punish evil." What is good about promoting covetousness? What is accomplished by encouraging theft? What is good about teaching those with less to hate (murder) their wealthier neighbors? How is your love for God fulfilled in teaching others to violate the commandments of God with your vitriolic words which are nothing more than the promotion of envy? How does your demand to extricate your neighbors wealth improve the life of those with less than you? Why exactly do you have less? Do you know? Do you care? Does it matter to you? Let me guess, it's your own fault, but you don't want to admit it? So instead, you blame others like Adam blamed, "...the woman" God gave him?

The Gospel is not a government program. The Gospel is not theft by majority vote. The Gospel is not taxes taken then divided amongst the parties for jobs, benefits, expenses, desks, name plates, state vehicles, lovely carpet, and the latest telecommunications devices, prior to their distribution to the poor. That's a government program. The Gospel is you seeing a need and filling it. If you can't do it personally, then you personally should do what you can to find someone who can. That someone is not your congressman. It is your responsibility. Give or sell everything you have. You know, take the plank out of your own eye before you try to remove the speck from your neighbors eye. Stop accusing falsely those you don't know. Stop demanding more from everyone when you yourself do nothing. Stop looking in the mirror and walking away completely forgetting what you just saw.

First do unto others what you would have others do unto you. Don't pretend you want your wealth taken or that you wouldn't care. That is just simply not true.

Tim: tim.m@clearwire.net

The transfer of value can only happen one of three ways:
1) Voluntary Gift - I can give you something that I own because I want to.
2) Voluntary Exchange for percieved mutual benefit - I will pay you a dollar for a loaf of bread - I value your extra bread more than my dollar, you value my dollar more than your extra loaf of bread - we both benefit.
3) Theft by using either Force or Fraud - I take something from you by physically overpowering you, threatening you, or tricking you into thinking you will benefit.

Which one most resembles taxation?

The 8th Commandment is pretty clear about the third option.

Ron Shultz:

We the people pay all taxes, and we are the sole ultimate source of all tax revenue. Regardless where government initially collects the money, all tax money ultimately comes from us, the people, even though business has to pay thousands or millions of dollars at one time, and get it back from us one dollar at a time.
Since we the people are the one and only source of all tax revenue:
There should be only one tax to collect all tax revenue.
It should be a single, simple, fair, direct, graduated, individual, full-income tax levied on living persons for each level of government: One Tax and Done.
The best thing that government can do to help the country, the people, and even government, is to repeal all of the many hundreds, or thousands of existing taxes, fees, and charges. These taxes are the federal deficit. These taxes are the high price of everything. These tax eliminations are spending cuts. Every tax that is eliminated is a tax that we the people no longer have to pay. These taxes are the difference between the price we pay for health care and everything else, and the price we would pay if these taxes were repealed. Eliminating these taxes will remove them from the price paid for everything by everyone, including government.
There is no limit to the benefits One Tax and Done will provide:
One Tax and Done will reduce the price paid for everything by one-third.

Jim Pier: pierman@wowway.com

I am not sure that taxation necessarily equates to theft, but I do believe that in the matter of transfer payments Mr. Morton is entirely correct. One must engage in mental gymnastics to provide moral justification for the coerced transfer of private property from one individual to another. This generally involves the subjugation of the right of the free individual to private property, which is a fundamental basis for the functioning of society, to the invented 'right' of another individual to some nebulous measure of minimum standard of living. As the rising tide has lifted all boats for the last 200+ years in the West, those at the bottom of the scale have enjoyed an improvement in their standard of living to the point that today's poor are better off than the middle class of only a few generations past. The work of Robert Rector of the Heritage Society demonstrates not only that the poor (in the US) are not so poor, but also that the great majority who fall into that category do so because they are not working. So what 'right' does the government have to confiscate the fruits of my efforts for the benefit of these others? I say no right at all.

What's worse, the greatest share of transfer payments do not go to "the poor" at all, but to fellow citizens who are "entitled" to those payments by virtue simply of their falling into a certain demographic, such as over age 65 (Medicare) or retired (Social Security). I believe our task is to disabuse the general populace of this notion of entitlement. Medicare and Social Security must be named for what they are, which is welfare payments, and their receipt stigmatized. At 45, I am at the front of the demographic wave that has come of age with an awareness that the Social Security program is unsustainable, and therefore conscious of our own obligation AND ABILITY to provide for our old age. This awareness must be expanded, and fleshed out with an understanding of economics combined with a return to the moral concept of self-sufficiency on which the entire West was built. Dependence on the state is nearly as far as one can get from individual liberty. How is it that we have accepted the notion that such a condition is to be expected of the average person? I have no intention of being dependent on the state for my subsistence in old age; why should I be in the minority?

D Johansson:

Mr. Manes, Ever the pragmatist. More class warfare claptrap. The point is that we can encourage people to be productive via our tax code. Stop wasting your time thinking about Paris Hilton. Start thinking about the millions of people who waste away their productive years because they exist on dollars given to them, rather than dollars produced by them. You are absolutely wrong to believe that billionaires do not create wealth, that wealth and productive investment have decoupled (talk about propoganda!). Since when has the stock market been a "sidebet"? Actually, it IS the reward for actually making the bet. And your response, of course, misses that.

There is nothing contrary in this article to the gospel. You just want to believe that all taxation is good, so you find Romans 13 handy, when it says to pay your taxes. Do you believe that all gov expenditures are good? Are you happy that hundreds of millions of our tax dollars fund abortions? Why is it any more just to fund programs which chain people to poverty because they never escape the crush of the System?

If you want to bring the Bible into it, why not discuss 2 Thessalonians 3:10? And the church is commanded to take care of widows and orphans; if we did our part, the gov wouldn't have to get involved. Our troubles compound when we cede morals to the gov.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awXV813l7s5M

Joshua Chamberlain:

Mr. Manes, I am willing to bet you any amount of money you want that, notwithsatnding your judgmental talk about what investments are "productive," any country that raises its highest margin income tax rates will see its economy tank and stay tanked. You need to read som basic literature on substitution effects.

Chris Manes: lokicsm@aol.com

More rightwing talking points from the Acton Institute.

Low taxe rate for billionaires do not "release more capital" for productive investment. Quite the opposite. As more and more wealth gets concentrated into the hands of the few, that wealth goes into non-productive "sidebets" like the equities market and derivatives. The most important economic development of the last 25 years is the decoupling of wealth and productive investment. And of course, this article misses it.

Since capital and productive investment is increasingly decoupled, it isn't going into things that increase our standard of living. That's why most Americans, mired in stagnant or falling wages, have had to borrow just to tread water for the past few decades. And the result was the subprime crisis, and the highest debt since the Depression.

If you have any evidence that lowering taxes on Paris Hilton will increase her productive investments, or that raising taxes on billioniares and putting it in the pockets of working people (who also invest) somehow stifles investment, please provide it. Otherwise, this is just more Acton propaganda designed to enrich the rich.

Not to mention this anti-tax rhetoric is contrary to the gospel:

Romans 13:6 - For the same reason you also pay taxes, for the authorities are ministers of God, attending to this very thing.

Romans 13:7 - Pay all of them their dues, taxes to whom taxes are due, revenue to whom revenue is due, respect to whom respect is due, honor to whom honor is due.

Chee Kin Tang:

This is a well written article on why high taxes are unjust. I have several issues that I would appreciate some more learned assistance in addressing:

1. I agree that many other private organizations (as mentioned in the article) are better placed to provide social services. As such, lowering taxes and thereby raising disposable income would encourage private charity. My questions are:
(a) Is it reasonable to assume that people out of generosity would give what would otherwise have been taxed to such causes?
(b) Or is this just as optimistic and/or unrealistic an expectation as believing the government to be an effective provider of social services? Put another way, is it utopianistic to believe private charitable giving would increase if taxes are lowered? Does not the Fall suggest that unintended consequences too can come from this idea?

I would really like to know if private charitable giving in the several Baltic states (or any other countries) that have lowered taxes (or gone on a flat tax) has increased. On the other hand, what we do know (from Barna Research) is that Christians do not really give close to 10% (putting aside for now if one believes this to be an imperative or not) and that other research shows giving to be lower in the non-Christian circles.

(c) Could such low giving be because of current high taxes or simply stingyness, greed, disobedience and so forth? Would Christians give more if taxes were lower? Do Christians in Switzerland, Monaco, Lichtenstein, et. al. give more relatively? If not, could we expect any more from others when Christians cannot live up to their obligations in giving?

(d) I do agree that government social services may be a "half loaf" but are we reasonably sure that there is a direct cause and effect relationship between lower taxes and more private charity? Is this too, a half loaf, albeit a larger half? You wrote "when people keep more of their disposable income, they CAN be more generous" (empahsis added) but does "can be more generous" translate into "would definitely be more generous." If not what steps would Acton take to encourage the virtue of generosity?

2. I agree that democratic capitalism has raised standard of living for everyone, a case of all boats (big and small) rising with the tide. But even in the OT, it was not assumed that the rich would necessarily be generous to the poor. God actually laid down the commandment to allow gleaning for the poor. In other words, the initiative had to be deliberate, bearing in mind that this was a somewhat homogeneous society with a common history. Therefore, given that we are in a pluralistic environment, what would Acton recommend as a good practice to redeploy wealth to the truly needy?

Please understand that I am a firm supporter of the principles espoused by Acton. What I do not see (probably due to my ignorance) are practical/realistic steps to solve the issues listed above. Thanks very much for any insights.

Bryan Morton: BryanDMorton@bellsouth.net

Taxation is theft. I've yet to find anyone who can precisely define taxation without defining theft at the same time. In asking for such a definition, I consistently get in return vague notions represented by words like "contributions" without, of course, any delineation between voluntary or coerced. Debt to the nebulous entity, society gets mentioned. But, once you cut out all the heart-felt gray areas, that with which you are left is nothing more than the group with the most power violating the private property rights of the group with the lesser power through coercive force or fraud. There are many ways to candy coat it, but the bitter pill inside is still what it is. The claims that "society" cannot function without the "necessary evil" of taxation are old and tired as legitimate voluntary trade and respect for private property rights prove again and again that it is more efficient than theft. Ask any thief and he can tell you exactly why he had no choice. Thieves are never short on justification for their actions.

Taxation doesn't undermine respect for private property rights. Taxation violates private property rights. I'd hardly call minimizing the thieves activities to the best of ones ability, an occasion of sin. Rights are the great fulcrum of equal justice. No individual or group can lay claim to greater rights than any single individual. Rights are inherently and equally owned by every individual. They are granted by God. Only He has the power to grant them or take them away. Humans may only defend rights, abdicate them, transfer them, respect them or violate them. This is what differentiates rights from privileges, which are granted by people, sometimes legitimately by the owner of the right relating to that privilege but sometimes illegitimately through coercive force which violates the rights of one to provide the privilege to another.

Peace, Liberty, Justice and Prosperity,
http://bryandmorton.blogspot.com/

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