Christopher R. Cocozza
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"In this world nothing is certain but death and taxes, Benjamin Franklin observed in 1789. On no day does this seem more true for most Americans than on April 15, the day they take part in the annual ritual of filing a tax return. Knowing that April is a time when taxes are much on the minds of voters, presidential candidates have traditionally used the April 15 deadline as an occasion to highlight their positions on tax policy. This year should be no different, and the differences between the major party candidates could not be clearer.

Although Catholic teaching has much to say about death, it has traditionally had little to say about taxes explicitly. The topic is not prominent among the voluminous teachings of the Catholic Church. But on Jan. 1, 2000, in his message for the World Day of Peace, Pope John Paul II invited policy makers and financial professionals to recognize the urgency of the need to ensure that economic practices and related political policies have as their aim the good of every person and of the whole person.

Certainly taxation is one such practice and policy. Catholic social teaching, as expressed in several recent papal encyclicals, is meant to focus especially on man as he is involved in a complex network of relationships within modern societies, not the least of which involves our complex economic relationships (Centesimus Annus, 1991, No. 54). Amid this financial complexity, focus upon the person of the taxpayer is paramount, as it is the cardinal point of Catholic social teaching that individual men are necessarily the foundation, cause, and end of all social institutions. (Mater et Magistra, 1961, No. 219). Within this context, two human aspirations affect and are affected by any tax system: the aspiration to equality and the aspiration to participation. The goods of this world are originally meant for all, explains Sollicitudo Rei Socialis (1987). All taxes, no matter their type, should facilitate equality inasmuch as they apply, at least proportionally, to all citizens as taxpayers. Taxes should also affect participation of all citizens in the common good of society.

Two principles of Catholic social teaching apply more specifically to taxation, namely the common good and the preferential option for the poor. A tax system represents a practical application of the principle of promoting the common good, understood as the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfillment more fully and more easily (Catechism of the Catholic Church, No. 1906). The practice of imposing and paying taxes is a necessary condition of living in a democratic society. The U.S. tax system promotes the common good insofar as the revenue raised through taxation allows citizens to experience the democratic freedoms that we view as essential. The pursuit of an education would be one example. But public perceptions can detract from the promotion of the common good when many view taxes as an unfair burden placed disproportionately upon them (e.g., tax shelters for the rich as the middle class gets squeezed).

The second principle of Catholic social teaching that may be applied specifically to taxation runs parallel to the first: the preferential option for the poor. An extension of the love that is fundamental to the Christian life, this principle affects the life of each Christian inasmuch as he or she seeks to imitate the life of Christ, but it applies equally to our social responsibilities and hence to our manner of living, and to the logical decisions to be made concerning our ownership and the use of goods (Sollicitudo Rei Socialis, No. 42). Therefore, any tax that places an excessive burden on the poor must be suspect, at least initially, for such a tax is contrary to the loving preference for the poor and vulnerable that should be our fundamental concern. Catholics need to ask themselves whether the current federal personal income tax promotes the common good and protects the interests of the poor.

Current Policy and Politics

At the center of the national debate on taxation in this election year are the massive federal tax cuts enacted by the Bush administration. On May 28, 2003, President Bush signed the Jobs and Growth Tax Relief Reconciliation Act, which over 10 years will create a $350 billion income tax cut. This was the second time the president has cut taxes during his tenure. The tax cuts have been criticized by the Democratic presidential hopefuls, who have characterized the Bush tax policy as tax breaks for the rich, because the primary beneficiaries of both tax cuts were upper-income taxpayers and middle-income taxpayers with children.

The cuts have also called into question the appropriateness of the progressive federal personal income tax. The idea of a progressive income tax is simple: those with greater levels of personal income have a greater ability to pay taxes and therefore should do so. In a progressive income tax system, for example, a poor person would pay little if any tax, a middle-income person might pay 15 percent of his or her income in taxes, and an upper-income person might pay 25 percent. In contrast, in a proportional income tax system, taxpayers at all income levels would bear the same income percentage burden. The proportional income tax, sometimes called a flat tax, is an idea that was much debated during the previous two presidential campaigns.

Currently, the federal personal income tax is the most progressive of all major taxes, but President Bush’s policies continue a shift in federal tax policy to a less progressive tax system. This shift began during the Reagan administration, when the top rates were cut from 70 percent to 28 percent. The shift was temporarily reversed by both the elder Bush (top rates were raised to 31 percent) and Clinton administrations (top rate of 39.6 percent) but has accelerated again during the current Bush administration (top rate of 35 percent).

In political circles, most Republicans support a phase-out of the progressive federal personal income tax in favor of a proportional income tax. Most Democrats favor making the personal income tax more progressive. This debate centers on economic and political concerns. From an economic perspective, most Republicans support the theory that tax cuts spur investment and economic growth and that ultimately tax receipts will grow, because even though the tax rates are lower, incomes are much higher. Economists call this theory supply-side economics. Democrats counter that supply-side economics creates budget deficits, which, in turn, prompt the Federal Reserve to raise interest rates, which, in turn, leads to the stagnation of long-term growth.

Democrats assert that progressive taxes reduce or eliminate budget deficits, causing the Federal Reserve to lower interest rates, and this generates economic growth. In the current political landscape, most Republicans denounce progressive income taxes as Robin Hood taxes: they simply take from the rich through higher rates and give to the poor through excessive social programs. Democrats typically counter by stating that since the rich have higher incomes, they should be subject to a greater tax burden. In addition, the Democrats contend that the deficits created today will unfairly place the burden of repayment on future generations.

Applying Catholic Social Teaching

Although there has been in-depth analysis and debate about the progressive personal income tax from economic and political perspectives, very few commentators have attempted to discuss this issue from the perspective of Catholic social teaching, which is based on the dignity of the human person.

How can tax policy promote the Catholic social values of seeking the common good and protecting the poor? It can promote the common good by making sure that any tax is both horizontally and vertically equitable. Horizontal equity means that the tax liability should be the same for two families with the same income level. Families in similar situations should be treated in a similar fashion. Vertical equity means that the burden placed upon taxpayers at different income levels should be different, because as income levels rise, ability to pay rises. Therefore tax rates should also rise.

Tax policy can protect the poor by including large exemptions to ensure that the incidence of taxation does not fall inequitably upon them, thus protecting them from additional financial burdens. In addition, sound tax policy would generate the revenues necessary to provide for the poor the necessities of life, including education and health care. This suggests that in order to protect the poor, a tax system should be progressive and not unduly burdensome on poor people. The current trend in tax policy, eliminating the progressiveness of the personal federal income tax, moves in the opposite direction from Catholic social thought.

Specific Changes

Improvements in the current federal personal income tax system could bring it more into line with Catholic social thought. First, the personal income tax should be reformed into a simple system in which all forms of income are included in the tax base, with very few exceptions. This would mean that all income from wages, interest, dividends and capital gains should be treated equally and taxed at each taxpayer’s given rate. In order to close loopholes that benefit the more affluent, deductions should be limited to a single large standard deduction. No taxpayer, for instance, would pay taxes on the first $20,000 of income. This would also eliminate taxes for most current low-income taxpayers.

The distinction in standard deductions for taxpayers who are single, married or heads of households should be kept. The only credits should be a per-child credit and an earned income credit. The child credit would be similar to today’s credit, except that the amount of the credit should be raised. The earned income credit, which gives very low wage earners an incentive to work, should remain relatively the same.

These changes would create an income tax that is both horizontally and vertically equitable. It would be horizontally fair, since all taxpayers with similar family situations would pay the same amount of taxes. Vertical equity would be accomplished, because as income rose, so would the tax burden. Put simply, the more one makes, the more one pays. The poor would be protected, because low-income taxpayers, through the creation of a much larger standard deduction and an earned income credit, would no longer be subject to the federal income tax.

Elections are a time for debate and decisions about the leaders, policies, and values that will guide our nation, wrote the U.S. bishops in their statement last fall, Faithful Citizenship. As Catholics consider how to apply the bishops’ instruction to bring their faith into the voting booth, they should carefully consider the candidates’ positions on a range of issues, including the very consequential issue of taxation.

Christopher R. Cocozza is assistant professor of business at DeSales University, Center Valley, Pa.

Comments

Carl Blondin | 3/25/2004 - 10:27am
I found Professor Cocozza's article on Catholic sopcial teaching and the tax debate (March 29, 2004) interesting. However, perhaps because I am a small businessperson whose clients often include the "working poor" I have a very different persepective than Professor Cocozza's academic perspective. Under President Clinton a family of four (mother, father, two children age 16 or under) earning $40,000 per year had a federal income tax liablity of $1,090 per year. Thanks to President Bush's tax cuts that same family now has a federal income tax liability of only $45 per year. After the Bush tax cuts taxpayers in the bottom 50% of all income earners pay a smaller percentage of all federal income taxes collected than previously and taxpayers in the top 10% of all income earners pay a larger percentage of federal income taxes collected than previously. I consider these to be good changes that reflect Catholic social teaching.

Professor Coczza failed to mention the hidden tax increase that both major political parties are ignoring, the so-called "alternative minimum tax." or ATM. The ATM was originally designed to make sure certain very high income Americans did not get away with paying no federal icome taxes. Soon, thanks to inflation, middle class couple earning $90,000 to $100,000 per year (the police officer married to the nurse) will be seeing an increase in their federal income tax bill.

The Demcocratic Party fought tooth and nail against the per-child tax credit, perhaps the most family friendly provision in the federal tax code. The "clear difference" Professor Cocozza refers to seems to be that the Republicans want to help families and the Democrats want to destabilize family life in America.

Sadly, I am unaware of any political party, major or minor, with a platform that clearly refelects the Catholic Church's teaching on social issues. Like all faithful Catholics I will have to do a lot of praying before voting in November.

Chris M. Graney | 3/25/2004 - 4:20pm
Prof. Christopher Cocozza says that Catholics need to ask themselves whether the current federal income tax promotes the common good and protects the interests of the poor (“Paying the Piper: Catholic Social Teaching and the Tax Debate” 3/29). He goes on to state that the trend toward eliminating progressiveness in the personal federal income tax (such as a “flat tax”) is in opposition to Catholic social thought.

Cocozza should study a 1040 form or a flat tax proposal. Under neither the current progressive system nor most flat tax proposals do the poor pay personal federal income tax. Also, flat tax systems arguably have advantages that promote the common good.

A traditional family of four, supported by a single breadwinner working full-time at $7.50/hr in 2003 would have an income of $15,000, a standard deduction of $9,500, exemptions of $12,200, and no taxable income. This family would pay no federal income taxes, for a real tax rate of 0% on their income. In fact, with the standard deduction, exemptions, and child tax credits, a family of four could earn $35,000 in 2003 and still pay nothing to the IRS. They could earn $45,000 and only pay $800 (2% of their income). A single parent with two kids gets a slightly worse deal, but still is not going to pay much to the IRS unless he or she is earning near $45,000.

Among households with children (the group most likely to be suffering from poverty), only the middle-class and above pay federal income tax under the current system. The “progressive” nature of the tax code is irrelevant to families of modest means. The only persons of modest means who are paying the IRS, and for whom a “progressive” tax makes a difference, are people with jobs but no children -- people who rarely are the focus of anti-poverty efforts, Catholic or otherwise.

“Flat tax” proposals don’t alter this. A typical “flat tax” scheme, such as the one promoted by Dick Armey’s “Citizens for a Sound Economy”, proposes to have a deduction for a married couple of $24,400 with $5,500 for each child, and a flat 17% tax rate after that. Under this system a married couple with two children would pay nothing to the IRS until their income topped $35,000. At $45,000 this family would have $9600 in taxable income and would pay $1600 to the IRS (4% of their income).

Flatter tax systems do tend to benefit the wealthy, but at the expense of the middle class, not the poor. Yes, Catholic social teaching may say something about improving the lot of the guy with the Ferrari at the expense of the guy who struggles to feed his family. But, from the perspective of Catholic social thought, is there a “right” side in a tax battle between the guy with the Ferrari and the guy with the SUV? Moreover, flat taxes do have advantages, such as reduced time and expense in tax collecting, and a more transparent process, that arguably benefit the common good.

Catholics concerned with federal tax policy might focus on payroll taxes. These have far more impact on people of modest means than the federal income tax.

Jerry Peters | 2/9/2007 - 1:53pm
A thank-you to the wry editors of my favorite periodical for the double whammy represented by the two provocative pieces, “Paying the Piper,” by Christopher R. Cocozza, and “Practicing What We Teach,” by Matthew J. Barrett (3/29). We hope they find their way to both the desk and the conscience of the secular and ecclesiastical hierarchy.

Carl Blondin | 3/25/2004 - 10:27am
I found Professor Cocozza's article on Catholic sopcial teaching and the tax debate (March 29, 2004) interesting. However, perhaps because I am a small businessperson whose clients often include the "working poor" I have a very different persepective than Professor Cocozza's academic perspective. Under President Clinton a family of four (mother, father, two children age 16 or under) earning $40,000 per year had a federal income tax liablity of $1,090 per year. Thanks to President Bush's tax cuts that same family now has a federal income tax liability of only $45 per year. After the Bush tax cuts taxpayers in the bottom 50% of all income earners pay a smaller percentage of all federal income taxes collected than previously and taxpayers in the top 10% of all income earners pay a larger percentage of federal income taxes collected than previously. I consider these to be good changes that reflect Catholic social teaching.

Professor Coczza failed to mention the hidden tax increase that both major political parties are ignoring, the so-called "alternative minimum tax." or ATM. The ATM was originally designed to make sure certain very high income Americans did not get away with paying no federal icome taxes. Soon, thanks to inflation, middle class couple earning $90,000 to $100,000 per year (the police officer married to the nurse) will be seeing an increase in their federal income tax bill.

The Demcocratic Party fought tooth and nail against the per-child tax credit, perhaps the most family friendly provision in the federal tax code. The "clear difference" Professor Cocozza refers to seems to be that the Republicans want to help families and the Democrats want to destabilize family life in America.

Sadly, I am unaware of any political party, major or minor, with a platform that clearly refelects the Catholic Church's teaching on social issues. Like all faithful Catholics I will have to do a lot of praying before voting in November.

Chris M. Graney | 3/25/2004 - 4:20pm
Prof. Christopher Cocozza says that Catholics need to ask themselves whether the current federal income tax promotes the common good and protects the interests of the poor (“Paying the Piper: Catholic Social Teaching and the Tax Debate” 3/29). He goes on to state that the trend toward eliminating progressiveness in the personal federal income tax (such as a “flat tax”) is in opposition to Catholic social thought.

Cocozza should study a 1040 form or a flat tax proposal. Under neither the current progressive system nor most flat tax proposals do the poor pay personal federal income tax. Also, flat tax systems arguably have advantages that promote the common good.

A traditional family of four, supported by a single breadwinner working full-time at $7.50/hr in 2003 would have an income of $15,000, a standard deduction of $9,500, exemptions of $12,200, and no taxable income. This family would pay no federal income taxes, for a real tax rate of 0% on their income. In fact, with the standard deduction, exemptions, and child tax credits, a family of four could earn $35,000 in 2003 and still pay nothing to the IRS. They could earn $45,000 and only pay $800 (2% of their income). A single parent with two kids gets a slightly worse deal, but still is not going to pay much to the IRS unless he or she is earning near $45,000.

Among households with children (the group most likely to be suffering from poverty), only the middle-class and above pay federal income tax under the current system. The “progressive” nature of the tax code is irrelevant to families of modest means. The only persons of modest means who are paying the IRS, and for whom a “progressive” tax makes a difference, are people with jobs but no children -- people who rarely are the focus of anti-poverty efforts, Catholic or otherwise.

“Flat tax” proposals don’t alter this. A typical “flat tax” scheme, such as the one promoted by Dick Armey’s “Citizens for a Sound Economy”, proposes to have a deduction for a married couple of $24,400 with $5,500 for each child, and a flat 17% tax rate after that. Under this system a married couple with two children would pay nothing to the IRS until their income topped $35,000. At $45,000 this family would have $9600 in taxable income and would pay $1600 to the IRS (4% of their income).

Flatter tax systems do tend to benefit the wealthy, but at the expense of the middle class, not the poor. Yes, Catholic social teaching may say something about improving the lot of the guy with the Ferrari at the expense of the guy who struggles to feed his family. But, from the perspective of Catholic social thought, is there a “right” side in a tax battle between the guy with the Ferrari and the guy with the SUV? Moreover, flat taxes do have advantages, such as reduced time and expense in tax collecting, and a more transparent process, that arguably benefit the common good.

Catholics concerned with federal tax policy might focus on payroll taxes. These have far more impact on people of modest means than the federal income tax.