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Tax Justice

 

TIM O’BRIEN, correspondent: There are some things the government must do, and the first reason for taxes is to pay for them. Beyond that there is wide debate over how taxes can be efficient and fair and what kind of society they should promote.

PROFESSOR GREG MANKIW (Professor of Economics, Harvard University): People on the left think that the tax code is not nearly redistributive enough, think that the rich are really getting away with murder. People on the right think that it’s not the job of government to be redistributing income and that the tax code we have is too progressive.

O’BRIEN: Greg Mankiw was the chairman of the Council of Economic Advisers in the second Bush administration.

post01-taxjusticeMANKIW: It’s a difference of values, of what you think government should be. In coming to any sort of tax reform those different values are going to collide, and there’s no easy way to sort of reconcile these very different philosophical positions about what the scope of government should be.

Professor Michael Sandel teaching at Harvard: How should income and wealth and opportunities and the good things in life be distributed?

O’BRIEN: The collision of the competing views of the role of government is the grist for a very popular course at Harvard taught by Michael Sandel, a professor and political philosopher.

PROFESSOR MICHAEL SANDEL (Professor of Government, Harvard University): The main purpose of a tax system is to raise revenue for the common good, for the public good. That’s its purpose. But it has to do so in a way that is fair, that involves shared sacrifice, because really it’s a matter of sharing the burdens of a free society and of a good society. That’s, morally speaking, what taxes are about. So unless a tax system meets the test of fairness, none of its other advantages really matter.

O’BRIEN: For Peter Wehner, a former deputy assistant to President George W. Bush, the issue is freedom.

post02-taxjusticePETER WEHNER (Senior Fellow, Ethics and Public Policy Center): This country was founded on liberty. It wasn’t founded on income equality. And there is a certain view, which I subscribe to, which says that people ought to be able to keep much or most of what they earn and to have the government in the business of taking it and deciding how it, government, will spend it rather than you as an individual I think is flawed, and I think it’s contrary to much of the American tradition, and I happen not to think that it’s consistent with ethical or moral or religious traditions as well.

O’BRIEN: But according to Michael Sandel, fairness—“sharing the burdens of a free and good society”—may compel a significant redistribution of wealth.

SANDEL: Some people do work harder than others, but what’s reflected in the vast income inequalities that we’ve seen in recent years is not hard work primarily. School teachers work hard, bus drivers work hard, kindergarten teachers, daycare workers—they work hard. Do they work less hard than hedge fund managers and Wall Street bankers who reap hundreds and thousands of times what they do in the market economy? Most of the wage differences, most of the income differences have very little to do with differences in effort. Most of them have to do with supply and demand and with the qualities that our society happens to value, and a lot of this is no doing of the people who are lucky enough to have those talents and those abilities to wind up on top. And if that’s true, then it seems to me there is an obligation for those who are affluent, those who succeed under this system, to share their bounty with those who through no fault of their own are less well off.

post03-taxjusticeO’BRIEN: In Alabama, which has its share of “less well-off,” families falling below the poverty level still pay income taxes and a hefty nine percent tax on groceries, while many wealthy property owners pay next to nothing in property taxes. Schools suffer, and some families find it even harder, because of taxes, to put food on the table. The Alabama legislature is composed almost entirely of Christians, but to one critic the state’s tax policy stands Christian values on their head.

PROFESSOR SUSAN PACE HAMILL (Professor of Law, University of Alabama): The moral principles of Judeo-Christian ethics demand that our taxes raise a level of revenue embracing the reasonable opportunity of all and that the burden be allocated in a moderately progressive way.

O’BRIEN: Susan Hamill is seminary trained, a United Methodist, a tax attorney, and a law professor at the University of Alabama, and she’s made a name for herself crusading for tax reform in Alabama based on Judeo-Christian ethics—the Bible.

post04-taxjusticeHAMILL: The Bible, first and foremost, absolutely forbids oppression—this is where I got started with this in Alabama—forbids oppression. What is oppression? Oppression is taking a person who’s already down, who is struggling, who is vulnerable and making their situation worse, actively doing so.

O’BRIEN: The idea that those who write our tax laws should be in any way guided by religious beliefs has been greeted with a degree of skepticism by some leading economists, like Greg Mankiw.

MANKIW: I don’t think one can go straight from any sort of religious view to what an optimal tax system looks like, but in terms of thinking about fairness and what’s the role for government—sure, I think all of our values come into play.

O’BRIEN: There’s no debate that tax laws should be fair, but how in a pluralistic society such as ours do we even define the word “fair”? And assuming we can define it, how far should the government go using tax dollars to promote fairness?

WEHNER: The aim of tax policy is to generate economic growth. A rising tide lifts all boats. I don’t think that, as a general proposition, using tax policy to create fairness or equality works. To take money from the rich, money that they have earned because they have worked hard, is not by itself just, and again, if you take money from the rich beyond a certain point you’re going to create disincentives for wealth creators, and that’s going to have a huge effect on the poor as well.

post07-taxjusticeO’BRIEN: One remedy championed by Steve Forbes in his run for the presidency in 1996 is a flat tax—17 per cent across the board, scrapping the current complicated and loophole-laden IRS code. The flat tax may have antecedents in the religious tradition of tithing, where each person gives the same percentage regardless of income.

MANKIW: Well, I think a flat tax would for sure be more efficient, and I think the strongest argument in favor of a flat tax has to do with efficiency.

O’BRIEN: Many economists, like Harvard’s Greg Mankiw, say the government should rely less on taxing income and more on a value-added tax on consumer goods, a form of flat tax found in much of Europe.

MANKIW: It’s a consumption tax rather than an income tax, so it does not tax savings. So if I earn some money and I put it in the bank and I don’t spend it, it doesn’t get taxed until I take it out and spend it later on whatever I buy. And I think there’s a lot of economists have argued over the years that consumption is a better basis for taxation than income, because consumption is actually what we’re enjoying. And also saving is a part of economic growth, so if we exempt saving until it’s later consumed, it’s going to tend to promote economic growth. So I think there’s a strong case to be made for using consumption as the basis for taxation.

O’BRIEN: If, however, sacrifices are to be shared equally, some adjustment would have to be made for those who have little money at all and are hard pressed to cover even the most basic necessities. Our tax code may be the best measure of what kind of a people we are and what kind of a country we have created. The late American philosopher John Rawls defined a just society as one you would want to live in, even if you did not know in advance what your place in it would be—whether you would be rich or poor, male or female, or what your race or I.Q. would be. In his course at Harvard, Professor Sandel also questions whether a country committed to equal opportunity should allow the wealthy to pass on their vast fortunes to their children and grandchildren.

post06-taxjusticeSANDEL: If we believe that everyone should have an equal chance to work hard and aspire and succeed, then it’s very difficult to justify that children of wealthy parents should have a huge advantage even before they start. The estate tax, quite apart from raising revenue, is a way a society says we want to give everyone equal opportunity as far as we can, and we don’t want to give a huge advantage to people, to let them start way before everyone else simply because they had the good luck, or the good judgment, to be born to affluent parents.

WEHNER: If your parents, upon dying, want to give their children the money rather than going to the government, that’s a perfectly reasonable thing to do. Is it fair to the children who by birth might get that money that it’s taken from them and it’s given to the government? I don’t think that there is an ethical or moral imperative to do that.

O’BRIEN: Even if political philosophers and economists could agree on the fairest and most efficient method of taxation, that surely doesn’t mean it will ever happen, because of the power of special interests, such as homeowners.

MANKIW: So why should the tax code subsidize home ownership, which is eventually at the expense of renters? On the other hand, trying to get rid of that is very hard, because homeowners think they’ve become entitled to it, so there’s no question that that’s going to be a hard one to get rid of, but it’s also the right thing to do. It’s easy for me to talk about tax reform. I have tenure. The typical congressman has to get reelected every two years, and so that makes their set of constraints much more troublesome and difficult to navigate than mine.

O’BRIEN: What the tax debate makes clear is just how divided the country is over how to define the role of government and the values it should promote.

For Religion & Ethics NewsWeekly, I’m Tim O’Brien in Washington, DC.

  • Anthony H.

    The redistribution of wealth is in keeping with our nation’s founding and shaping documents. To do so supports the balance in justice which our nation is charged to promote. The danger in this arises when the governmental institutions and regulations designed to execute this justice become so large and unwieldy that they detract from rather than support the moral imperative at the base of tax justice – which is to combat greed. Consumer and luxury taxes may give pause or encourage savings, but tax justice must be exercised as part of earning wealth, as well as its distribution. Resolution to multi-faceted taxation viewpoints and the solution to complicated tax problems is the flat tax.

  • LVTfan

    Do none of these people see anything peculiar about permitting some of us to be the beneficiaries of the rental value of awesomely value urban land, while others get to pay them for access AND pay taxes to support the public services and goods which help make that land valuable?

    Do none of them see anything peculiar about permitting some corporations and their stockholders — and equity is quite concentrated in the top few percent of us — to monopolize non-renewable natural resources just as if those resources had been granted to them and not to all of us?

    Leona Helmsley was not talking about tax evasion but about the design of our system when she said “WE don’t pay taxes. The little people pay taxes.” She knew whereof she spoke.

    100 years ago, the Single Tax movement pointed the way to a much more just way to fund our common spending, and not one of these people even mentioned what was then common wisdom. Have our tenured economists been coopted and corrupted? (“Inside Job” mentioned “the corruption of economics” and there was an excellent book by that title in 1990, by Mason Gaffney and Fred Harrison, which I commend to your attention.)

  • Henry A. Huffman

    Thank you for this thoughtful piece which represents a broad spectrum of thinking on a question that is not being debated on the national scene; i.e., what should the goal of our tax policy be? I agree that tax policy differences reflect diffferent values. We should be more intentional in clarifying the values that are inherent in specific policies. Clearly, the former Bush advisor sees it as stimulating economic growth. Professor Sandel sees it as funding those services that only government is poised to provide. I don’t think the answer is either-or but both-and. The question of those services which only a national government can provide will evoke broad agreement on topics like national defense; air, food, and water quality; interstate commerce; and the guarantee of human rights. I wish the national debate on health care reform had explicitly addressed the question of whether health care should be treated as a right of citizens in this nation. My denomination, the United Methodist Church, in its social policies regards access to health care as a universal right.

  • Joe Ogburn

    I disagree with most people here. The debate of our Tax policy goes forward almost everyday. There are two sides of this issue – the socialist side who are all about redistribution of wealth / social justice and the free capitalist side who are for free markets, personal responsiblilty and personal liberty.

    The founding document make it very clear that the intention was capitalist freedom. “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers”

    It required the 16th Amendment in 1913 for them to even setup a progressive income tax. We went from basically a flat tax per person (collected from the STATES not the people) to what I refer to as a progressive punitive tax scheme. I call it this because a non-progressive tax would be a set amount from each person, a progressive tax uses a percentage of income instead of a set amount. In our system we use a percentage (which makes it progressive) and PUNISHES a person for higher income by increasing the percentage. We are about as far away from the founding documents as we can be.

    How can it be that for the first 125 years of this nations existence charitable groups worked with the people who could not care for themselves but now it is a job that only government can do? There are things that only government can do: provide for the military and defence, provide equal police protection for all, provide equal fire protection for all, provide for a fair court system, and provide a hiway system that all can use. Education has become an add on, but there is serious doubt that government can do anywhere near the job as well as private entities.

    I would agrue that the government is in violation of the equal protection clause with both the tax code AND any attempt to redistribute wealth. In both cases, people are treated differently under the law. And equal treatment under the law is the legal definition of justice.

  • Pat Adelaide

    Is it possible to get a dvd of this program that included Michael Sandel? thanks Pat Adelaide

  • E.Patrick Mosman

    “Those who claim that Jesus was a big-government socialist provider with regard to helping those in need and reducing individuals personal responsibility to simply ‘Love thy Neighbor’ and replacing it with government programs is a misreading of His message. Jesus Christ made the point “to render to Caesar the things that are Caesar’s and to God the things that are God’s” with no guidelines as to how the Romans were to spend the tax monies.
    “For you will have the poor always with you” Matthew 26.11 and nowhere in the New
    Testament does Jesus Christ lay the responsibility for caring for the poor, the sick the hungry or thirsty, the homeless or any oppressed people on any governmental body. He did not cite King Herod, the priests of the temple, the local mayor or the Roman powers as the source of Charity. He made it an individual responsibility time after time in His sermons, in His parables and in His own acts. The Good Samaritan was not an example of “Love thy neighbor” because he stopped at the nearest inn and asked that a 911 call be made but because he acted, providing aid, comfort and financial assistance to his neighbor.”
    My allegiance is God, Family, Country, in that order and at the moment the demands,TAXES of course, by local, State and Federal taxing authorities along with the most incompetent handling of the economic disaster are making it difficult to care for obligations to God and family. Where are the tax monies going,most to support the almost 50 percent of wage earners who pay no federal income tax, much to pay bloated salaries to bureaucrats, to fill up their ‘guaranteed’ retirement accounts for public employees while those who scrimped and saved are watching their investments decline and saving accounts pay zilch. The US is rapidly becoming the ‘Animal Farm” with the pigs in charge, “All animals are equal, but some are more equal” with the non-tax payers and public”servants” living the guaranteed life and retirement on the backs of those still employed.
    Further the Obama administration is considering reducing or eliminating deductions for charitable donations on those who contribute the most, the wealthiest as a start but surely to include all. As a taxpayer and one who contributes to many charitable organization, both religious and secular, I want to control how my contributions are spent and not to whom the government supports which support and fund practice which I oppose on moral, ethical or religious grounds,free contraceptives for all is a starter.
    As Churchill said
    “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

  • E.Patrick Mosman

    Professor Sandel’s ” So unless a tax system meets the test of fairness, none of its other advantages really matter.” fails to define “fairness”, So what is fair? Is it fair that high earners be taxed at a 60, 70, 90 percent rate? Or perhaps it would it be fair for the government to simply confiscate all of the earnings of every worker and remit an average refund, say $ 50,000 to every wage earner. Is that what Professor Sandel is proposing as fair?
    A report from the Internal Revenue Service found that the rich — 8,274 people with incomes of $10 million per year or more — earned a total of $240 billion in 2009.
    Even of you confiscated every dime they earned, you would barely have enough money to cover government spending for 24 days. Of course, about a quarter of that money already goes to the federal government for federal income. So make that 18 days.
    Another 227,000 people earned $1 million or more in 2009.
    Millionaires averaged taxes of 24.4% of their income — up from 23.1% in 2008.
    They, too, did not earn enough money to come anywhere close to covering the annual deficits that are now $1.5 trillion a year as Barack Obama was the first president to sign a budget with a $1 trillion deficit into law.
    The obvious conclusion even to the highly educated professors must be that the United States government has a spending problem, accelerated by the reckless spending increases of the Obama administration, that cannot be solved by tax increases even if all the wealth of every American citizen was confiscated, killing, of course, the proverbial gooses that provided the golden eggs.

  • E.Patrick Mosman

    “Harvard’s Greg Mankiw, say the government should rely less on taxing income and more on a value-added tax on consumer goods, a form of flat tax found in much of Europe.”
    I was working in Europe when the VAT, “added value tax” a consumption tax, came into being in France because they did not have a with-holding mechanism for income taxes, so they collected very little. It was adopted by the other European countries, even those with an effective income tax collection system, as it was a sure-fire moneymaker for governments. The tax rate started out low in most countries but rose substantially as the tax rate was increased in small increments over the years. In the European system companies, manufacturing plants retail stores, mom-pop stores, artists, restaurants, transportation companies and so on from the largest to the smallest, pay the VAT tax on all their purchases and collect the VAT tax on all their sales and remit to the government the difference between the taxes paid and the taxes collected. The record keeping was a job bonanza for bookkeepers, tax accountants and computer companies. Because of the onerous accounting costs many small businesses became uneconomic and closed or entered into the VAT less ‘underground economy. Of course, the last purchaser ends up paying all of the accumulated taxes on the product from the first screw to a finished car.
    Several examples from the lowest to the highest in the EU”
    Luxembourg VAT Rate: 15%
    Denmark VAT Rate: 25%
    If Professor Mankiw was proposing to eliminate completely the personal and business income tax and replace them with a consumption tax, accompanied by a balanced budget requirement, that would be an acceptable solution as every American would have a stake in the government ‘s financial affairs.

  • E.Patrick Mosman

    Edited and resent:
    Comment #2
    Professor Sandel’s ” So unless a tax system meets the test of fairness, none of its other advantages really matter.” fails to define “fairness”, So what is fair? Is it fair that high earners be taxed at a 60, 70, 90 percent rate? Or perhaps it would it be fair for the government to simply confiscate all of the earnings of every worker and remit an average refund, say
    $50,000 to every wage earner. Is that what Professor Sandel is proposing as fair redistribution?
    A report from the Internal Revenue Service found that the rich — 8,274 people with incomes of $10 million per year or more — earned a total of $240 billion in 2009.
    Even of you confiscated every dime they earned, you would barely have enough money to cover government spending for 24 days. Of course, about a quarter of that money already goes to the federal government for federal income. So make that 18 days.
    Another 227,000 people earned $1 million or more in 2009.
    Millionaires averaged taxes of 24.4% of their income — up from 23.1% in 2008.
    They, too, did not earn enough money to come anywhere close to covering the annual deficits that are now $1.5 trillion a year as Barack Obama was the first president to sign a budget with a $1 trillion deficit into law.
    The obvious conclusion even to the highly educated professors must be that the United States government has a spending problem, accelerated by the reckless spending increases of the Obama administration, that cannot be solved by tax increases even if all the wealth of every American citizen was confiscated, killing, of course, the proverbial geese that provided the golden eggs.

    Comment #3
    “Harvard’s Greg Mankiw, say the government should rely less on taxing income and more on a value-added tax on consumer goods, a form of flat tax found in much of Europe.”
    I was working in Europe when the VAT, “added value tax” a consumption tax, came into being in France because they did not have a with-holding mechanism for income taxes, so they collected very little. It was adopted by the other European countries, even those with an effective income tax collection system, as it was a sure-fire moneymaker for governments. The tax rate started out low in most countries but rose substantially as the tax rate was increased in small increments over the years. In the European system companies, manufacturing plants retail stores, mom-pop stores, artists, restaurants, transportation companies and so on from the largest to the smallest, pay the VAT tax on all their purchases and collect the VAT tax on all their sales and remit to the government the difference between the taxes paid and the taxes collected. The record keeping was a job bonanza for bookkeepers, tax accountants and computer companies. Because of the onerous accounting costs many small businesses became uneconomic and closed or entered into the VAT less ‘underground economy. Of course, the last purchaser ends up paying all of the accumulated taxes on the product from the first screw to a finished car.
    Several examples from the lowest to the highest in the Europe.
    Luxembourg VAT Rate: 15%
    Denmark VAT Rate: 25%
    If Professor Mankiw was proposing to eliminate completely the personal and business income tax and replace them with a consumption tax, accompanied by a balanced budget requirement, that would be an acceptable solution as every American would have a stake in the government ‘s financial affairs.

  • Anders13

    I agree with Mr. Joe Ogburn and wish to comment further .

    Professor’s Sandel’s approach to tax policy has been in effect in this country for nearly 100 years and what has happened is the transformation of a thriving free enterprise system into crony capitalism with the state as the biggest capitalist and international corporations as the biggest cronies. Obviously there is something wrong with his approach.

    First Professor Sandel decries the apparent advantages in luck and rewards that many have in his making a case for inviting us to violate our own tenth commandment. This deception only leads to injustice and more commandment violations.

    Secondly, Christians who heed the call to serve their neighbor and engage in free enterprise receive monetary, social and spiritual rewards in varying degrees for their service and normally choose their professions accordingly. Professor Sandel takes a narrow secular view in wanting GOVERNMENT to “balance” monetary reward across professions. Imagine the corruption that results from having teachers and medical professionals who seek primarily monetary gain for their services. Such corruption is already widely evident. The jobs markets are completely distorted.

    Thirdly, taxes, public charity, and government equal total corruption. As Christians, charity is one of our most important callings and our greatest works, yet it is our nations greatest corruption( the national debt is testament to this). Charity and charity organizations are highly susceptible to corruption and must be aggressively policed and regulated, however we have no legitimate policing agent. State and federal governments, the defacto agents, engage in public charity and are the most corrupt because government can legalize it’s own corruption and escape detection(The national debt is testament to this too). The hard reality is that except for disaster relief, state and federal governments must be constitutionally prevented from engaging in public charity so that they can carryout their legitimate responsibilities as police and regulator. Churches, private charities, and local governments can take over charity responsibilities. The burden on government will be reduced and the amount and effectiveness of charity will increase multifold.

  • John Doyle

    Thank you for such a wonderful piece. After hearing pundits on other shows, I found your work impressive.

    In his essay “Common Sense,” Thomas Paine writes that there are those that work toward society and those that work toward governent. Those who think in terms of society want to find what is common between citizens and make a nation where people work to build a society for the betterment of all. Those who speak of government want to bring out our differences and divide the citizens into classes.

    So it was not by accident that LBJ entitled his program “The Great Society.” And it is not by accident that our previous administration used the term “government” while it was deconstructing what once was a surplus and using the public’s funds as a piggy bank for the rich.

    It is not about socialism. And it certainly is not about capitalism. It has never really been about either one. The small business owner is run over by the multinational corporations just like the poor. Those on Wallstreet do not create jobs, they lay people off, run the companies into the ground, and then have the American taxpayers of the future (kicking it down the road) pick up the tab. The grandmother who worked scrubbing floors and raising kids eats catfood from a can. Congressmen and their backers dring $600 stakes with $300 bottles of wine. The safety nets that once defined us as a people as being “decent” are being dismantled so the rich can build another spare house with a bigger swimming pool.

    Building a fair, safe, and unified society for all is not only a better use of our precious lives than placating the idle children of the rich, it is our generation’s last great chance at achieving common decency.

  • John Henderson

    This is making my head ache.