Letter from Rome

Dear friends of Istituto Acton,

This month’s letter is going to be about a single subject that has me particularly worked up at the moment: Taxes.  And not only because my payroll taxes have gone up and shrunk my take-home pay, which was already far from luxurious given the dollar-exchange rate and the cost of living in a European capital rather than, say, Grand Rapids, Michigan.  (Cue pity-inducing violins now.) 

So thank you, President Obama, for sticking it to the “millionaires and billionaires” and letting the payroll taxes go up for everyone because that means more money into a Social Security trust fund that will casually be raided to pay for other government programs.  You are also now receiving our “contributions” to your health-care mandates which will add more bureaucracy and costs to our already overly-managed, expensive system.  And thank you, Prime Minister Monti, for increasing the VAT tax here in Italy while coyly toying with the idea of cutting other taxes.  In the end, however, you settled with increasing the overall tax burden during a recession.  I never tire of telling Italians that prices are supposed to fall during an economic downturn, but the opposite is happening, which is probably why Italy has not seen growth for over a decade.  All in all, economic ignorance runs rampant among politicians on both sides of the Atlantic.  This would be bad even if we didn’t live in explicitly commercial societies, where all we ask is that governments make it easier for people to create wealth.

Of course there’s something banal or seemingly selfish in complaining about taxes.  No one (except Warren Buffett) likes paying higher taxes because that means less money to do what we would like to do with our own earnings; higher taxes unquestionably means less individual freedom.  But, as Supreme Court Justice Oliver Wendell Holmes put it, “taxes are what we pay for a civilized society.” That quotation is on the façade of the IRS building in Washington, DC, and without taxes, we wouldn’t have a government.  Insofar as government represents some form of political and social cohesion and order, taxes are indeed necessary, especially to pay for police to protect our property and an army to defend our borders.  We also need to pay for a legal system we can reliably turn to in order to adjudicate and settle disputes so that our commercial society functions efficiently.  And nearly everyone with a social conscience would willingly pay taxes to provide for some kind of social safety net or insurance to handle the worst of life’s misfortunes or accidents.  Only the most ardent libertarian anarchist or most utopian believer in human goodness would argue for no taxes at all.

Taxes have to come from somewhere, however, and therefore rely on having wealth to tax.  If taxes are so high and burdensome to pay that people would rather not work or evade taxes altogether, the system breaks down, along with any semblance of the rule of law and patriotism.  The system also malfunctions when the government that collects taxes makes promises it cannot afford to keep, which is what has happened in the modern welfare state.  One way around the problem of promising more than can be delivered is to borrow the money through the issuance of government bonds and increasing public debt as a result.  We’re soon caught in a vicious circle of increased spending, less wealth to tax, and increased debt, followed by calls to cut spending and increase taxes, which leads to less growth and even less wealth to tax and more poor people to care for, etc.

Nevertheless, for many on the political left, raising taxes to pay for social programs seems like the socially responsible thing to do.  Why shouldn’t the rich pay their “fair share,” especially since they’ve benefited from public benefits and perhaps the fortune of being born into wealth?  Haven’t we all benefited from low taxes in the past, so it’s now the time to “give back to society”?  The problem with this way of justifying higher taxes is that it’s false.  For starters, we’ve been paying more in taxes than the government lets us know.  As Jeffrey Anderson put in a Weekly Standard article called Taxation Without Cessation”:

Liberals generally try to mask our rising levels of federal taxation—and our far greater increases in federal spending—by reporting them in relation to the gross domestic product (GDP), rather than in relation to inflation and population growth. That way, if Americans’ taxes are doubled, but the economy doubles in size over that same span, it doesn’t count as a tax increase. The same goes for spending. The underlying assumption is that any increase in economic growth should be matched by a corresponding increase in the size and scope of government. But there’s nothing that says our government has to grow every bit as fast as our economy—especially when we’re already $16,000,000,000,000 in debt and plainly can’t afford to keep borrowing.         

The left has also managed to get us to think that the only way for us to show solidarity with our fellow citizens and the poor is to pay higher taxes.  But it is wrong to equate Christian charity with an increasing social role for the modern state.  Not only is it bad for economic growth, it is bad for religious organizations that carry out social ministry.  The dispute between the Catholic bishops and the Obama administration over the contraceptive mandate is just one example of how government funding always comes with strings attached, strings that can very easily threaten the Church’s independence and ability to practice what it preaches.  This growing awareness among religious leaders is also implied in Pope Benedict’s recent Motu Proprio Intima Ecclesiae natura on the service of charity, which emphasizes the need for Catholic charities to maintain their religious character and not succumb to the secularizing influences of the broader culture.  Easier said than done, of course, and while some social workers may complain about such ecclesiastical interference, it is a message well-suited for the New Evangelization.

So you don’t have to be an egoist to call for lower taxes.  Higher taxes not only reduce an individual’s economic freedom, they slow down economic growth for everyone, increase the size and scope of government, and threaten the independence of religious and other institutions, many of which are given tax exemptions so long as they avoid “politics,” which can sometimes mean telling the truth about what a given candidate proposes to do.  To some, a tax exemption may be a way to encourage private charity for the social goods provided; to others, it looks like a way to avoid criticism from religious leaders by buying them off with a form of “hush money.”  At some point, arguing for lower taxes will start to look like the socially responsible thing to do because it means fewer resources for a nanny state that wants to keeps us in a state of perpetual adolescence.

We are not yet at that point, if the controversy over golfer Phil Mickelson’s complaint about California’s high taxes is any indication.  Mickelson was lambasted for suggesting that he may leave California, even though most of his colleagues at the top of the PGA tour have long since done so.  Poor Phil – he is punished for speaking the truth, when he should have just done what the other did and move without saying why.  But I give credit to him and other celebrities like Gérard Depardieu and Will Smith who think it’s fundamentally wrong for the government to confiscate their hard-earned money with high-sounding talk about social justice and solidarity with the poor.  It’s long past time we needed to have a serious discussion about taxes and what we expect the state to do.  Nothing will change unless popular opinion demands it, however.  If the public won’t listen to those of us in think tanks and political opposition, athletes and movie stars may have a better chance.

Kishore Jayabalan