Tuesday, August 8, 2006
In my first two posts (here and here), I suggested general guidelines for and initial steps of analysis in evaluating a tax regime in light of Catholic Social Thought principles. I conclude that outline in this post, turning today to the secondary economic and social effects of taxation as a crucial but often neglected element. As part of the prudential judgment dimension of Catholic Social Doctrine, the law of unintended consequences cannot be ignored.
Let me begin with a a real-life illustration (see here and here) that could be a case model for exploring the application of Catholic Social Teaching to tax policy: In 1990, Congress imposed a luxury tax against yachts. Liberals like George Mitchell and Ted Kennedy touted this measure as a progressive means of forcing the rich to pay their faire share of taxes. Then reality dropped in with a resounding thud. The effect of the tax was to devastate the market for yachts, leading to a drop in sales of 77 percent and the loss of jobs for 25,000 people in the boat-building industry. An overwhelming majority of Senators, including George Mitchell and Ted Kennedy, called for the immediate repeal of this tax.
So what should have been the Catholic Social Thought position on the luxury tax on yachts? Surely we ought not endorse this tax based upon some purist view that it was progressive in formulation and was targeted toward the wealthy, blindly ignoring its real-world catastrophic effects? Surely the proper response based upon Catholic Social Teaching would be to preserve tens of thousands of jobs and maintain the health of the maritime sector of the economy, even if this also meant that, yes, some rich people would get to cruise around in big boats?
Accordingly, when developing a wise tax policy for a just society, progressivity in rate and primary application to the wealthy is not a talisman for virtue in revenue collection. In my last post, I pointed out that what appears to be progressive in theory may be anything but proportional to capacity to pay in actual application. In addition, even a tax that is applied in what appears to be an equitable manner nonetheless may so distort economic transactions, suppress economic growth, depress positive incentives, or encourage negative incentives that the tax’s detrimental secondary effects far outweigh any supposed advantage by virtue of its supposed progressivity. To offer but one example, thankfully not reflected in today’s tax policy (although not unprecedented in the history of American taxation), a marginal tax rate of 100 percent (or even 60, 70, 80, or 90 perfect) might appear magnificently progressive, but such confiscatory rates would destroy any incentive for economic production above a certain level and, for that reason, would result in no increased collection of revenue. The luxury tax on yachts discussed above is a more recent example of liberal tax policy colliding with economic reality.
Furthermore, some argue that certain kinds of taxes or taxes against certain items serve worthy public policy goals despite their manifestly regressive nature. Most prominent in this category would be the “sin tax” on cigarettes, a gigantic mark-up in price that falls most heavily on the poor but that nonetheless is justified by its supporters as designed to deter smoking (although we all know the real motivation is to raise revenue in a less controversial way or at least against those least likely to complain to legislators).
As another example, among the most regressive taxes imposed today are the various federal and state taxes on gasoline. While being forced to pay more at the pump causes but little inconvenience to the wealthy (as a person can only fuel and drive one car at a time), the tax gouges those of limited income who need transportation to work, families wishing to take a summer vacation, working class people who make a living in the trucking industry, and everyone who has to pay higher prices on groceries, clothing, and consumer goods as the increased transportation costs are passed along to the consumer.
Yet the same prominent figures on the political left, in Catholic circles and elsewhere, who claim to support progressive taxation tend to be strong supporters of the gasoline tax, justifying it as necessary to discourage use of petroleum fuels, force people to use public transportation, and improve the environment. During the Clinton Administration, Al Gore advocated substantial hikes in all fuel taxes for just these reasons. I am not particularly fond of those arguments and think the regressive effect of the gasoline tax is troubling, but I haven’t heard any calls from the leftward side of the Catholic Social Thought community to bring those tax rates down. My primary point today, however, is not that that the gasoline tax ought to be reduced, but that plausible arguments have been offered to justify even such regressive taxes as advancing other overriding public policies. Thus, the multi-dimensional nature of any evaluation of tax policy is confirmed.
Finally, the progressivity of a proposed tax simply is not an argument for loading an additional tax burden upon any given sector of society. When any form of taxation is proposed, we certainly should consider its potential effects on the least advantaged elements of society, as well as the other dynamic effects it may have on the economy, society, liberty, cultural choices, etc. But even if a tax passes muster on such factors, we have merely reached the preliminary conclusion that it is a fair tax and is not an overly disruptive measure if any tax is to be imposed. Whether increasing taxes of any type (either directly or indirectly by allowing tax cuts to expire) is a prudent idea must be a separate stage of analysis. The case for greater governmental spending, with attendant increases in taxes to fund larger government, must be made independently.
Two years ago, Rev. John J. Myers, Archbishop of Newark, explained that Catholic Social Thought is a tool for conscientious evaluation of public policy, in which people of good conscience but motivated by the same goals may come to different places:
The Church’s social teaching is a diverse and rich tradition of moral truths and biblical insights applied to the political, economic, and cultural aspects of our society. All Catholics should form and inform their conscience in accordance with these teachings. But reasonable Catholics can (and do) disagree about how to apply these teachings in various situations.
For example, our preferential option for the poor is a fundamental aspect of this teaching. But, there are legitimate disagreements about the best way or ways truly to help the poor in our society. No Catholic can legitimately say, “I do not care about the poor.” If he or she did so this person would not be objectively in communion with Christ and His Church. But, both those who propose welfare increases and those who propose tax cuts to stimulate the economy may in all sincerity believe that their way is the best method really to help the poor. This is a matter of prudential judgment made by those entrusted with the care of the common good. It is a matter of conscience in the proper sense.
Greg Sisk
