The National Catholic Review
Edward M. Welch
Jesus did not have much to say about tax policy. He brushed off questions, saying, Render to Caesar what is Caesar’s. The Gospel message does, however, have important implications for how we should collect taxes. Christ clearly taught that we should be concerned about the least among us, that we are stewards and not owners of the earthly possessions God has entrusted to us, and that wealth in this world is of questionable value and should certainly not be our ultimate goal. All of these principles support what we generally call a progressive tax policy, one that places a greater burden on those who have the most. It supports what has been, at least until recently, a generally accepted principle in the United States: that we should tax at a higher rate individuals who have higher income and greater wealth.Shifting the Tax Burden

There is another aspect of Christian teaching that bears on tax policy: the value of work. The church has often emphasized the dignity of labor and respect for work. Christian teachings put a greater value on work than on wealth. Recent trends in U.S. tax policy are in conflict with this principle. There has been a shift in the tax burden from taxes on wealth to taxes on work.

The tax changes that took effect between 2001 and 2003 lowered a variety of tax rates. These reductions, however, were not uniform. The reductions of taxes on wealth were much greater than the reduction in taxes on earned income or wages. There were small changes in the rates of various income tax brackets that apply to wages, but there were much larger changes in the rates that apply to capital gains (profits from selling stocks and other assets) and dividends (the returns paid to investors), and the tax on estates may be completely eliminated.

Consider, for example, a family that was in the 31 percent tax bracket prior to 2001. The marginal tax rate on earned income was reduced from 31 to 28 percent. That is more than a 10 percent reduction. For the same family, the reduction in taxes on capital gains went from 20 percent to 15 percent, which is about a 25 percent reduction. The tax rate on dividends went from 31 percent to 15 percent, a reduction of over 50 percent. For the period from 2001 to 2010, the tax rate on estates will go from 55 percent to zero, a 100 percent reduction. This represents a dramatic shift in the tax burden from taxes on wealth to taxes on work.

Evaluating New Proposals

Many people are advocating major changes in our tax system. In evaluating such proposals, we should consider the extent to which they shift the tax burden to work.

Consideration is being given to proposals that would completely eliminate taxes on capital gains and dividends. These, of course, would clearly and directly shift the burden from taxing wealth to taxing work. Christian principles should lead us to question these proposals very seriously.

There is also a set of proposals described as encouraging savings or investment. Sometimes they are described as ways of simplifying current tax shelters, such as I.R.A.’s or 401(k)’s. These proposals would greatly expand the opportunities for people to shelter from taxes funds that they have invested. It is true, of course, that these proposals would encourage savings and investment, but they would also shift the tax burden from wealth to work. These proposals tell people: To the extent you use your earnings to accumulate wealth, we will not tax you; to the extent you work and earn wages to support yourself and your family, you will have to pay taxes on your wages. Income that is invested is not taxed. Income is taxed only when money is used to support workers and their families. This is the antithesis of Gospel values.

Other approaches are also being considered. Some suggest that we should introduce a national consumption tax or a national sales tax. Such a tax would partially or completely replace our current income tax. This could greatly reduce or completely eliminate the income tax, but it is not necessarily a good idea. If such a national tax eliminated taxes on dividends and capital gains, for example, but kept taxes on earned income, it would be a very bad idea.

Those who are concerned with Christian principles might be tempted to reject such proposals immediately. I would suggest, however, that the idea of a national sales tax is not inherently bad, provided such a tax is shaped properly. A sales tax that does not apply to necessities like food, medicine, some clothing and transportation necessary for employment might not be a bad alternative. If such a plan replaced taxes on wages but kept taxes on dividends and capital gains, it would be a very progressive approach.

Some Positive Suggestions

Those of us who emphasize the progressive side of Christian principles tend to be only negative. We oppose tax cuts and privatization of Social Security, but we do not offer positive alternatives. So I will suggest here a few positive approaches to tax policy.

First of all, we need to raise taxes. The country is running up a huge deficit. For four years we have had a very conservative president and Congress. If they cannot cut spending, no one can. We cannot continue to spend more than we take in, so we need to take in more. Besides dealing with the deficit, we need to repair our roads and support our schools and universities. If we want to be a strong nation, we must have a good infrastructure. If we want to turn out bright students, we must devote resources to education.

Where would the new money come from? I would eliminate the cap on Social Security taxes. (Currently, income over $90,000 is not taxed.) I would at least restore the cuts we have made in taxes on dividends and capital gains. These should be taxed at the same rate as earned income. Finally, I would not eliminate the estate tax but would keep it, with a deduction for the first $3 million. This is not intended to be a scheme to soak the rich. (For reasons I do not fully understand, such proposals are not at all acceptable today.) I simply want to insure that all types of income continue to bear their proper share of the tax burden. And I think that the share borne by wealth should be somewhat larger than the share carried by work. At least that is what Christian principles seem to say to me.

This is admittedly not a detailed plan, but it at least offers some direction on how Christian principles might be applied to tax issues.

Review and Simplify

Many recent changes in the tax code will expire within the next few years. There are calls to completely review, and perhaps simplify, all of our tax policies. This comes at a time when many people in our country want faith-based moral values to play a bigger role in public policy decisions. Tax policy should be carefully examined in the light of the Gospel values that emphasize help for the least among us, the concept that all of our possessions are gifts from God and the repeated warnings in the Gospel that it is sinful to place too much emphasis on wealth. In view of some tax proposals that are currently popular, we should be particularly careful about the extent to which tax changes shift the burden from taxes on wealth to taxes on work.

Edward M. Welch is a professor in the School of Labor and Industrial Relations at Michigan State University.

Comments

RICHARD BRENNAN | 11/28/2005 - 2:20pm
Being neither a tax policy wonk nor a scripture scholar (only a retired lawyer), I make the following observations. First the effort to make the case that "Gospel values" tell us that income from wages stands on a higher moral plane than income from investments was lacking in any scriptural analysis. The sole reference, "Render to Caesar..." just didn't do it. Nor did the oblique reference to the Church's teaching to the "just wages" tradition support this conclusion.

Taxpayers who worked, earned income on which they paid all of the applicable taxes, and who now support themselves on investment income can reasonably ask: Where do I find in Church teaching support for the claim that investment income is of less moral value than my earned income, and should therefore be subject to a higher tax rate. This article fails to provide a reasoned answer.

I suggest that trying to seek support in scripture for such an income tax policy at this moment in our nation's history will create much division and gain little informed and rational support.

Did anyone else find it incongrous that immediately following the article was AMERICA's plea for year end tax planning that would include gifting appreciated stock so as to avoid the capital gains tax it would bear if sold??

Marianne S. Battista | 2/21/2007 - 12:23pm
Edward M. Welch advocates taxing wealth in his article “Taxing Work” (11/14). While on the surface this may seem like a good thing, in fact it has many pitfalls. The wealth he advocates taxing includes dividends and capital gains. Corporate U.S. dividends are actually taxed twice, once when the company reports income and again when the dividend is distributed to the stockholder. Mutual fund capital gains payouts are taxed, even though an investor chooses to reinvest those gains and does not take out any “wealth.” Many retired folks who have worked and saved and invested in stocks and mutual funds (now categorized as wealth) all their lives rely on those dividends and capital gains for their income. To raise taxes on these payouts would be unconscionable for these seniors.

Raising the cap on Social Security would drastically affect small-business owners, who according to Small Business Administration reports make up over 90 percent of all employers. Small-business owners would likely hire fewer workers and limit their expansion so there would be fewer workers who would pay taxes.

I agree that Congress has spent recklessly, including much pork, and caused the deficit to increase dramatically. But even there the deficit, as measured as a share of G.D.P., is expected to drop sharply, not rise.

All in all, taxing wealth in this day and age may not be what Jesus would have wanted, considering all of the above.

RICHARD BRENNAN | 11/28/2005 - 2:20pm
Being neither a tax policy wonk nor a scripture scholar (only a retired lawyer), I make the following observations. First the effort to make the case that "Gospel values" tell us that income from wages stands on a higher moral plane than income from investments was lacking in any scriptural analysis. The sole reference, "Render to Caesar..." just didn't do it. Nor did the oblique reference to the Church's teaching to the "just wages" tradition support this conclusion.

Taxpayers who worked, earned income on which they paid all of the applicable taxes, and who now support themselves on investment income can reasonably ask: Where do I find in Church teaching support for the claim that investment income is of less moral value than my earned income, and should therefore be subject to a higher tax rate. This article fails to provide a reasoned answer.

I suggest that trying to seek support in scripture for such an income tax policy at this moment in our nation's history will create much division and gain little informed and rational support.

Did anyone else find it incongrous that immediately following the article was AMERICA's plea for year end tax planning that would include gifting appreciated stock so as to avoid the capital gains tax it would bear if sold??