Assessing the Value of the Tax Plan

Tax season is upon us once again. For many it is a time of dread, not only because of the complexity of the task, but also because of the likelihood of paying more taxes. Feeling already overtaxed, many may find President George W. Bush’s proposed tax plan appealing. There is something in it for everyone who pays income taxes.

In addition to asking, What’s in it for me? the discussion about the tax plan and the national budget centers around economic and political questions. Will tax cuts contribute to economic growth? Will they rescue the economy from the current downturn? Is the estimated budget surplus too high? Too low? Will there be adequate money in the budget for defense and education programs? These are not unimportant questions, but discussion often overlooks the ethical assumptions behind the questions and the moral values that the tax plan will either promote or harm.


An Overview of the Tax Plan

President Bush proposes a tax cut of $1.6 trillion over the next decade, to take effect on Jan. 1, 2002. The heart of the proposal is a tax cut for everyone who pays income taxes. Over a period of five years, the plan would reduce the current five-rate personal income tax structure to four lower rates (10, 15, 25 and 33 percent). The bottom rate cut will affect rich and poor alike, because everybody’s income up to a certain level is taxed at the lowest rate. Additional dollars are taxed at the rate applied to the next income bracket, and the process is repeated bracket by bracket until the top is reached. After that all income above a certain level is taxed at that top rate. The proposed rate reductions account for about one-third of the cost of the plan. In addition, the federal tax rate on large estates, currently those valued at $675,000 or higher, would be reduced gradually, then eliminated in 2008. Also, the marriage penalty, which causes many two-income couples to owe more taxes than they would owe if they were single, would be reduced. Two-income couples would be allowed a deduction of up to $3,000. And the child credit would be increased from $500 to $1,000 per child; the income limit for claiming the credit for couples filing jointly would be increased from $110,000 to $200,000.

Mr. Bush claims that his plan is based upon fairness, that some of the projected surplus (as of this writing estimated to be $5.6 trillion over the next decade) should be returned to the people who pay the bills. He maintains that his plan would put more cash in the pockets of increasingly hard-pressed individuals and eliminate barriers to prosperity built into the tax code. At a public ceremony on Feb. 8 in the Rose Garden, the President warned that high tax rates, a legacy of World War II, were no longer necessary. In fact, they had become harmful to the economy. As Mr. Bush stated: Forty years later, our treasury is full and our people are overcharged.... Returning some of their money is right, and it is urgent.

The Bush plan rests on three assumptions. First, fairness requires that people be given what is their due. It is only fair that wealthier people get a larger portion of the tax cut because they pay a bigger share of income taxes. Second, there is a correlation between cutting taxes and behavior. If people pay less in taxes, they will work harder, with greater dedication and efficiency. Third, the country will run better if the government spends less. Leaving the surplus in government hands rather than returning it to the citizenry through tax cuts encourages wasteful spending.

Critics argue that Mr. Bush’s overall tax plan would give far bigger cuts to people at the upper end of the income scale than to those in the lower- and middle-income brackets. Estimates are that 43 percent of the benefits would go to the wealthiest 1 percent of Americans, with average incomes of $900,000 a year. Furthermore, the richest Americans would especially gain from repeal of the estate tax. Even if families in the lower brackets see a greater proportional reduction in their income taxes than those in the top bracket, as the Bush administration claims, the main burden on such families is not the income tax but the payroll tax, which will not be cut.

Other critics are concerned that we are giving away the national nest egg. Most of the projected surplus for fiscal year 2000 represents surpluses of the Medicare and federal pension trust funds. Like Social Security, both of these funds are accumulating reserves for the geriatric future of the baby boomers. The short-term surpluses in these funds will be needed in the not too distant future. Also, critics charge that the tax cut could lead to a fiscal mess if the projected federal budget surplus does not materialize as expected. Projected surpluses are simply thatprojections; and economic projections five and ten years out are hardly guaranteed. They will occur only if steady high economic growth continues, which depends on the continuation of high productivity gains. Some argue that it is irresponsible for the present government to lock into place tax cuts based on highly contingent forecasts of future surpluses.

Additional concerns are raised about discretionary spending expenditures that are not mandated by existing law. Half of discretionary spending goes for defense, and the president has promised future increases in military expenditures. Non-military discretionary spending, as a percentage of G.D.P., is at its lowest level since 1962. If military spending increases, there will have to be substantial cuts in other government services. How much federal government money will be available for education, health coverage for low-income working families, improving Medicare benefits, medical and scientific research, safety and consumer protection, oversight of financial markets, transportation improvements?

Opponents of the Bush plan maintain the projected surplus has altered our budget planning. No longer can it be said, as was the case under the elder Bush, that the money is simply not available for social programs. Now the debate concerns whether the surplus projections should be used to assist those who need government programs or whether they should be given to wealthy Americans who have prospered over the last 20 years.

In sum, critics maintain that the Bush plan rests on faulty priorities and presumptions; it ignores important social and economic goals and lacks fiscal discipline and prudence.

Presumptions From the Tradition

To help guide an ethical assessment of the president’s tax plan, I propose three moral presumptions drawn from the Catholic social tradition. I do not claim that these presumptions are sufficient, only that they are necessary to inform the process of decision-making. To examine the tax plan in light of these presumptions means that components that conflict with them are required to bear the burden of proof.

Presumption 1. Individual rights-claims are determined within the bonds of solidarity.

In Catholic social teaching, a just society is one in which humans exist in right relationship to one another. The modern social tradition sets forth the notion of mutual interdependence among all groups and classes in society. Pope John Paul II, perhaps more than any of his predecessors, has emphasized the importance of recognizing our interdependence and the harm done to individuals and society when bonds of solidarity are ignored. In his encyclical letter On the Value and Inviolability of Human Life (1995), John Paul sees as profoundly disturbing our failure to recognize that we are indeed our brothers’ and sisters’ keepers. His prophetic critique of culture is based upon the biblical story of Cain and Abel. Just as Cain did not recognize that he is, indeed, his brother’s keeper, so too may we neglect bonds of solidarity.

In his encyclical on social concerns, Sollicitudo Rei Socialis (1987), the pope defines solidarity as a firm and persevering determination to commit oneself to the common good...because we are all responsible for all (No. 38). As a Christian virtue, solidarity constitutes the privileged expression of Christian charity and is clearly linked to the Christian ideal of unity or communion. This unity reflects the intimate life of the Trinity and discloses a new model of the human race, which must ultimately inspire our solidarity (No. 40). Yet while solidarity demands universal love, it requires an option or love of preference for the poor, a special primacy in the exercise of Christian charity. Solidarity implies that actions and choices are determined with an awareness of how they affect others in an interdependent world and with an acute awareness of how individual rights-claims impact the poor and the common good.

Presumption 2. The state has a positive, though limited, role in promoting the common good.

In the Roman Catholic tradition, the state has a positive but limited function in stimulating, coordinating, directing and guiding other societal groups and institutions in working for the common good. Since material goods are an important part of the common good, the state cannot ignore the realm of economic life. The Catholic tradition’s understanding of the state attempts to give due importance to both individual and social aspectsprotecting and promoting the human rights of persons as well as acknowledging the social nature of human beings. Government authorities have some responsibility for the common good, and, accordingly, state intervention may be needed to lessen inequality, to keep fluctuations of the economy within bounds and to provide effective measures for avoiding mass unemployment.

The degree of state intervention necessary to achieve the common good is determined within the tension between the complex reality of interdependence (what John XXIII referred to as the process of socialization) and the principle of subsidiarity. Subsidiarity places the burden of proof for intervention on those forces farther removed from the grassroots; hence the orientation is to limit appeals to the federal government as the first resort. On the other hand, the acknowledgment of interdependence legitimates, as a matter of principle, the expanding role of the state in accomplishing tasks beyond the scope of personal or local initiative. So the two principlessubsidiarity and socializationought to be understood in a relationship of tension and are to be governed by which best serves solidarity in a given instance.

Presumption 3. Both the goods of creation and the burdens of social life are to be distributed in accord with the principle of distributive justice.

In the Catholic tradition, the goods of creation exist to serve the needs of all. Paul VI, in his encyclical The Development of Peoples (1967), underscored the universal purpose of created things: All other rights whatsoever, including those of property and of free commerce, are to be subordinated to this principle.... It is a grave and urgent social duty to direct them to their primary finality (No. 22). Distributive justice provides some direction in determining how the goods of creation are to be distributed within a society.

Distributive justice regulates the relationship of the social whole to the individual. So distributive justice establishes the right of all to share in the goods and opportunities that are necessary for participation in the human community. Distributive justice also recognizes the need for a basic minimum for all, but beyond that allows for a measure of inequality for various reasons. There is a social duty to redirect created goods to secure the good of all. Through its tax system the state can and should work to help achieve this goal.

The first presumption suggests that goods be distributed with a greater emphasis given to the needs of human beings to have the necessary minimum for living a decent human life. Other aspects can enter into the broad question of the total distribution of the goods of creation; needs are to be modified by concerns for effort and sacrifice that must be balanced by attention to productivity and scarcity of resources. The priority, however, is on needs, then effort and sacrifice, and productivity over scarcity.

In a just society, those with more have an obligation toward those who have less. This outlook supports a proportional and progressive tax structure. Proportionality requires the rich to pay a greater percentage of their income and wealth for taxes, since they are in a better position to bear the burden of paying for the goods of social life. The U.S. Catholic bishops, in their pastoral letter on economic justice (1986), reiterated the point that the tax system should be structured according to the principle of progressivity, so that those with relatively greater financial resources pay a higher rate of taxation. This reflects the concern that burdens as well as benefits be fairly shared.

Assessing the Tax Plan

These three moral presumptions suggest an assessment of the Bush administration’s tax plan. On the positive side, the tax plan has the potential to promote bonds of solidarity and to foster responsibility. By eliminating the marriage penalty and increasing the child credit, it is hoped that commitment to marriage and family responsibility will increase. Intact two-parent families are more apt to achieve a decent standard of living and thus more fully participate in the life of society. And according to Catholic social teaching, because the family is a privileged form of human community as well as the foundation of the social order, government policies that encourage stable marriages and families are generally worth supporting.

Furthermore, everyone who pays income taxes will receive some benefit and thus may be better able to contribute to society. If people do work harder with greater dedication and efficiency when they pay less in taxes, this may also contribute to better relationships in the workplace. The tax plan can also promote an aspect of the common good, such as economic rights, by returning some of the money individuals have paid in taxes. Individuals then may have more of the resources needed to live adequately and in accord with responsible freedom. The proposed tax deductions are also one way to alleviate some of the economic distress families and individuals experience and to increase the prosperity of the nation.

Is the tax plan fair? Yes, if assessed according to the principle of commutative justice, which calls for fundamental fairness in agreements and exchanges between individuals or private social groups. This is justice in the strictest sense of the term, governed by a strict arithmetic equality. According to the principle of commutative justice, it is fair to give more of a tax cut to those who pay more taxes.

The Catholic tradition, however, has recognized that the justice of taxation belongs to the realm of distributive justice, not justice in the strict sense. The proper distribution of the tax surplus can be properly determined only in the wider context of the proper distribution of the goods and burdens of social life. Fairness is not determined by strict arithmetic equality but by proportional equality. Distributive justice requires that the economic pie be fairly divided. This means distribution of goods on the basis of need first and the distribution of burdens on the basis of ability to pay. It does not appear that the principle of distributive justice is the focus of the Bush tax plan. Rather, the proposal seems to have a structure that will exacerbate an already serious problem by giving a larger portion of resources to the richest Americans, who already have plenty, while not doing enough for those with less. The principle of progressivity is not adequately factored into the tax plan, so that those with relatively greater financial resources assume the burden of a higher rate of taxation.

Finally, when we evaluate the tax plan in terms of its impact on the poor, several questions emerge. Will the tax cut for those on the lowest rung of the economic ladder be sufficient to improve their economic well-being? Will there be enough discretionary funds in the budget to pay for the public needs of society, especially the poor? What steps could be taken to reduce or offset the payroll taxes, which place a disproportionate burden on those with lower incomes? How will the tax plan provide help for the largest segment of the working poor, single mothers with children?

An assessment of the Bush administration’s tax plan ought to include reflection upon the moral commitments in the Catholic social tradition that will be either protected or harmed. The three that have been suggested here are not the only ones, but they do represent presumptions that place the burden of proof on those who would override them. Understandably, we may have a bias in favor of any tax cut that will provide some personal benefit, especially as we prepare our income tax returns for 2000, but other considerations must be remembered.

Coincidentally, this is not only tax season but also the Lenten season. Assessing budgets and taxes does not usually coincide with the spiritual reading and practices encouraged during Lent. But perhaps it is an especially appropriate time for doing just thatreflecting upon the proposed tax plan and asking not only What’s in it for me? but also Am I my brothers’ and sisters’ keeper?

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