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.