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GUEST COMMENTARY: Tax reform should adhere to moral principles

Tuesday, June 21, 2011 | 5:33 p.m. CDT; updated 11:46 a.m. CDT, Sunday, July 24, 2011

A healthy economy enables citizens to fulfill their basic obligations — moral as well as financial. These obligations include providing for themselves and their families and fulfilling responsibilities to the poor and to future generations.

The federal tax system plays an important role in shaping the American economy. Many of the moral principles necessary for a free and just economy bear directly on questions of taxation. To contribute to an ethically and financially healthy American economy, federal tax reform should adhere to several moral principles.

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First, America’s tax system should enable the national government to perform its basic constitutional duties. These duties include establishing justice and protecting the common good for present and future generations.

Second, taxation shouldn’t subsidize or encourage harmful behavior (see 1 Peter 2:13-14 for a version of this principle). At a minimum, the tax system shouldn’t incentivize or enable laziness, free-riding, fraud or failure to pay one’s fair share. It shouldn’t punish things like hard work, financial success and marriage, and it shouldn’t allow unsustainable debt.

Instead, tax policy should require government to live within a balanced budget and encourage businesses to invest, generating economic growth. Among individuals, the tax system shouldn’t get in the way of beneficial actions like getting a job, saving for college or retirement and raising kids within marriage.

An initial step to accomplish this would be cutting wasteful spending and removing existing “marriage penalties” in the tax code. Furthermore, Congress could commit to taxing the money people spend rather than the money they save and ending forms of double taxation on personal savings.

Granting a few strategic deductions also supports socially beneficial goals like paying college tuition and expenses, giving to charities and making interest payments on a mortgage. As part of a comprehensive reform plan, Congress could minimize other deductions and close complicated loopholes to simplify the tax system. (Saving the American Dream is a comprehensive plan by The Heritage Foundation that suggests how Congress might simplify the tax system and restore economic prosperity.)

Simplicity in the tax code is itself a moral virtue. A simple, transparent system enables better financial stewardship on the part of both citizens and those who govern, and less opportunity for fraud and corruption.

A third principle concerns promoting human dignity by ensuring a robust social safety net. In a healthy American economy, taxation should adeptly target assistance to those who need it most. Along with the earned income tax credit, a reformed tax system could provide low-income workers a tax credit to defray private health insurance premiums as one approach to helping.

The most significant way to target assistance to the truly vulnerable is to reform Medicaid, Medicare and Social Security to function as a true safety net. For instance, rather than continuing Medicare as an unsustainable entitlement that blindly gives benefits to all — even billionaires — Congress could reform Medicare into a budgeted insurance program that responds humanely to need. The underlying goal of reform should be to make these government programs reliable as targeted protections against poverty. Under current law, that reliability is far from certain.

A fourth principle has to do with responsibility for the well-being of future generations. Unless America gets its fiscal house in order, we will hand down an unsustainable burden to our children and grandchildren. This would not only impose a crushing debt — and the harmful credit ratings, interest rates and other implications that go along with it — it would also threaten the current social order and the viability of America’s basic economic and political systems.

In short, failure to enact serious reforms in America’s tax and spending systems isn’t just financially irresponsible, it’s also morally irresponsible. Reforms are possible that can encourage personal responsibility and economic growth, ensure a robust social safety net and secure the blessings of liberty to our posterity.

Ryan Messmore is the William E. Simon fellow in religion and a free society at The Heritage Foundation.


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Comments

Gregg Bush June 21, 2011 | 8:01 p.m.

Dr. Messmore,
There is no irony in your last name.
I understand you received a doctorate in political theology in 2011 from Oxford University. Congratulations on your scholarship and dedication.
If churches want to have a say in our politics, it's time for them to put their money where their civics are: pony up the taxes from the collection plate. Render unto Caesar what is Caesar's.
Or never call on law enforcement or fire services. Don't use our parks or our streets. No pay = no services. So put up the money. Your community needs you.
But the most intriguing thing in your column is your switching from businesses and people - corporations and individuals. Businesses invest and generate growth. People save and should have their spending taxed.
Who's side are you on? I'm on the side of people.

(Report Comment)
frank christian June 21, 2011 | 9:19 p.m.

Mr. Bush - yours, (unbelievably) "Who's side are you on? I'm on the side of people."

I submit, that as with every post of yours that I have read, you are on the side of the government! You intimate your concern for the health and welfare of the "people", but, your only solution to that end is more taxes for the Gov't. Try, please, somehow, to think of some other way.

(Report Comment)
Ellis Smith June 21, 2011 | 10:09 p.m.

"Render unto Caesar what is Caesar's..."

"Caesar" seems to be doing pretty well in the tribute business, but he's not big on maintaining a balanced budget. :)

(Report Comment)
Michael Williams June 21, 2011 | 10:47 p.m.

Gregg:

Actually, I agree with you about taxing the assets of churches. Especially real estate.

Now, how many of your fav non-profits would you name that should be treated the same way?

I'll get us started: Sierra Club, Rainbow Coalition.

Your turn.....

(Report Comment)
Paul Allaire June 21, 2011 | 10:55 p.m.

"Second, taxation shouldn’t subsidize or encourage harmful behavior"
(Peter 2:13-14)
"13 Submit yourselves for the Lord’s sake to every human authority: whether to the emperor, as the supreme authority, 14 or to governors, who are sent by him to punish those who do wrong and to commend those who do right."

Well, I don't see much that would tie in that passage with the subject of discussion. Possibly my imagination is not fertile enough. I would think that enough of that submission would in itself be a harmful behavior. And then there is the question of which emperor someone might submit themselves to and how exactly they decide who does wrong and how they are to be punished. Beyond that there is also a question of how it is or was decided who would be emperor. I doubt the emperor spent much time following those instructions.

And then I think about is those drones. Your taxes shouldn't be subsidizing harmful behavior, no matter how much you want to punish someone for not having your religion.

(Report Comment)
Ellis Smith June 22, 2011 | 7:06 a.m.

@ Michael Williams:

Tax the Sierra Club? Oh, Michael, you are one funny fellow!

Do you have one or more diplomas awarded by University of Missouri System? If so, please check the smaller print on each of them. Were one or more of them awarded at the Rolla, Missouri campus?

Sierra Club, on one hand, and mining, petroleum, nuclear, metallurgy and even ceramics (glass, etc,) on the other hand, are not big buddies, and doubtless never will be.

Yes, let's tax Sierra Club, in the highest available tax bracket.

[Perhaps we can arrange to award you a certificate as an Honorary Knight of St. Patrick.]

(Report Comment)
Michael Williams June 22, 2011 | 7:17 a.m.

Ellis: One at UMKC, 2 at MU in Columbia.

I'm more of an "Honorary Night of St. Doofus" kinda guy.

(Report Comment)
frank christian June 22, 2011 | 7:31 a.m.

Now see what you've done? H. Ottinger can't be far behind. Look out! He'll sic Ken Midkiff on you guys for sure.

(Report Comment)
Ellis Smith June 22, 2011 | 8:09 a.m.

@ Frank Christian:

Ken Midkiff? He'd be about as welcome on the campus of Missouri University of Science & Technology as Truman the Tiger would. :) Truman might actually fare better.

(Report Comment)
Mark Foecking June 22, 2011 | 8:25 a.m.

It probably is a good idea to look at unconventional taxes at this point. Churches and other non-profits do represent an enormous revenue pool, and since all of them do use government services, some givng back might be in order in these down economic times. It could be a progressive tax just like our current income tax system - the big television churches that make millions would pay a higher rate than the Shiloh Worship Center would (if Shiloh paid anything at all). PETA would pay a higher rate than Peaceworks. Heritage and Cato would be right up there too. Etc.

Same goes for a petroleum tax. Actually, if we're looking at $4/gallon gasoline anyway, the eventual decrease in demand might cause world oil prices to drop enough that the price wouldn't be all that different. Government would have another revenue source, our imports would be reduced, and that money would stay in the country.

DK

(Report Comment)
frank christian June 22, 2011 | 9:32 a.m.

It seems, Mark F. never saw a tax he didn't like. "Not for Profits" are allowed for the purpose of providing some benefit to the public in general. Mark sees them as an "enormous revenue pool", for The Government. Our Government has created debt, this year, equal to 70% of our GDP. Up from 40% of GDP in 2008. Will "unconventional taxes" solve this problem? Most understand that our governmental problem is overspending, not under taxation. Perhaps, Mark, in his research, will find and advise us of an instance in history, when our Congress having received more revenue, did not immediately spend more revenue.

(Report Comment)
frank christian June 22, 2011 | 10:00 a.m.

I had thought to use today's story about KLM, Dutch airline, using cooking oil to fuel it's passenger flights, as better than taxation to reduce use of fossil fuels. But, of course, if this Administration shuts down our fast food industry, to cure obesity, then bio-fuel from used cook oil probably won't work in this country.

(Report Comment)
Mark Foecking June 22, 2011 | 11:04 a.m.

frank christian wrote:

"Will "unconventional taxes" solve this problem? Most understand that our governmental problem is overspending, not under taxation."

Does the government spend too much money? Certainly - so do most of us. It's called "living beyond your means". Trouble is, no one in Congress or the White House seems to be able to come up with a realistic plan to cut more than a few percent of the deficit. So we're left with finding new sources of revenue. I don't like taxes, particularly, but I also don't like racking up levels of debt like we are.

You never rally answered me before - what would you cut to get the budget under control? It has to add up to something like $1.5 trillion. Please enlighten me.

DK

(Report Comment)
Mark Foecking June 22, 2011 | 11:08 a.m.

frank christian wrote:

"then bio-fuel from used cook oil probably won't work in this country."

It won't really work in any country without a large reduction in the scale at which we use liquid fuels. Even if all cooking oil were collected and used as fuel, it could only supply a couple percent of the energy we get from petroleum.

DK

(Report Comment)
hank ottinger June 22, 2011 | 11:45 a.m.

Mr. Messmore writes, "Congress could commit to taxing the money people spend rather than the money they save and ending forms of double taxation on personal savings.'

Well, we are taxed on the money we spend (although he's probably alluding to a national sales tax), and since when are personal savings taxed? And what percentage of the citizenry has any "personal savings"? Last I heard, the US has one of the lowest savings rates of any advanced country. On a related note, it was reported recently that the majority of Americans have put next to nothing away for retirement. This could be due to any number of factors including sloth and stupidity, but it could also be tied to the miserably stagnating middle-class wages of the last 20 years or so.

(Report Comment)
John Schultz June 22, 2011 | 11:58 a.m.

Or it could be deluded people thinking they can retire on Social Security...

(Report Comment)
hank ottinger June 22, 2011 | 1:06 p.m.

Of course, that too.

(Report Comment)
Michael Williams June 22, 2011 | 2:23 p.m.

Hank says, "since when are personal savings taxed? And what percentage of the citizenry has any "personal savings""
_________________________

If you save money and put it in a mattress, then it isn't taxed. That's because it isn't earning anything...that is, interest. Savings in a bank IS taxed on any interest earned.

I should also point out that the word "savings" has meanings well beyond having a savings account at a bank. Many folks have investments in munis, bonds, T-bills, stocks, etc. All "interest" and "profits" are taxed except for some munis.

A very high percentage of folks have "savings", although the "savings" may not meet your definition.

But, your statement that few have sufficient savings for retirement is spot-on. Simply put, if you are 60 and have less than a million in sellable assets, you're real close to seeing a dramatic reduction in the standard of living to which you have become accustomed.

I do not attribute this fact to the "miserably stagnating middle-class wages of the last 20 years or so." I'm quite confident that if the middle-class had doubled their wages, it would have more than doubled its purchases of crap. I also don't ascribe it to "sloth", but you're close on the "stupidity" part.

I've said over and over again....the middle and lower classes don't know their assets from a hole in the ground. Wealthier folks do, tho. That's why they are wealthier.

(Report Comment)
frank christian June 22, 2011 | 2:36 p.m.

Mark F. - "Trouble is, no one in Congress or the White House seems to be able to come up with a realistic plan to cut more than a few percent of the deficit." A remarkable statement since no one has been trying, until R's took control of House Last January. "So we're left with finding new sources of revenue." Why can you not address the amount of new revenue your solution is going to require? Is it because the path we are on is going to take more revenue than there is, anywhere? An "open minded" scientist with a mental block, like this, on government spending is amazing to me.

The required cuts to balance the budget and start debt reduction are beyond my pay grade, social security, remember? The first cuts,however, to even start the procedure, must be to the number of Democrats in our Congress. They must be replaced with Conservative Republicans, Conservative Democrats won't do, their leadership won't pay any attention to them. Beyond that the cuts in spending will have to be "across the board". That means everything. Another big factor in achieving balanced budget, when it happens, will be "Growth" which will produce much new revenue for deficit reduction. You can't/won't conceive that, but it has/will. Then, quickly moving on down to "how can growth be achieved?" We arrive at the obvious for those who include honesty in their economics. Again, across the board TAX CUTS. That is how it can be done, only if Conservative R's are allowed the votes to drag the Liberal Democrats, out of the dark, into the sunshine.

Spare me, if you will, the graphs and rhetoric showing "as a percentage of," etc. tax cuts don't produce revenue.

(Report Comment)
frank christian June 22, 2011 | 2:58 p.m.

"Hank says, "since when are personal savings taxed?" "And what percentage of the citizenry has any "personal savings"?

Hank was probably thinking of the USSR, when Pravda surprisingly, announced, towards the end, during Gorbachev, that about 2% there were wealthy, about another 10% (technocrats who ran the country), were above average, while everyone else was considered poor. The author who repeated this story, stated that Pravda had added that ownership of stocks, bonds, savings accounts were not figured in their computations, because no one in USSR possessed those niceties.

(Report Comment)
Jimmy Bearfield June 22, 2011 | 3:44 p.m.

"since when are personal savings taxed"

As Michael notes, interest is subject to tax. It's also a safe bet that Roth IRA distributions eventually will be taxed.

(Report Comment)
Paul Allaire June 22, 2011 | 7:06 p.m.

Printing money and then taxing the interest on a basic savings account is wrong. Printing money and then taxing the resulting "profit" from the sale of a home is wrong. The reason is that the neither the bank account nor the home actually increased in value. The government just allowed some banks to loan out imaginary money to whoever they decided to lend it to, diluting the value of your dollarettes, making the same transactions require a higher number than before.

It would be easier if your government didn't allow the banks to inflate currency this way, but economists are trained to retain a dogma that no business can function in an environment without constant inflation. The government conveniently forgets that it created the imaginary paper profits that it then taxes people for.

The taxes then become like property taxes - an amount of blood that is extracted and sacrificed as a tribute so that you may be allowed the permission to retain that which is already yours, likely bought with your taxable income that has already been taxed.

Can you imagine the struggle to determine which portion of your investment income was due to actual profits and which portion was due to currency inflation?

The two primary taxes should be income and sales. Long term capital gains should only be taxed on the portion of the gain that is above and beyond the rate of inflation, because otherwise they become nothing more than a form of wealth confiscation. From what I understand, the United States is somewhat unique in the way that it taxes the results of it's own currency inflation.

(Report Comment)
Mark Foecking June 26, 2011 | 7:26 a.m.

frank christian wrote:

"Beyond that the cuts in spending will have to be "across the board""

OK, let's see how the "war on terror" goes when we cut military spending by 40%. Or how our creditors will let us only pay 60% of the interest on the national debt. Or how Social Security and Medicare recipients will be satisfied with only 60% of their checks and payments.

You understand we could close every managerial and regulatory federal agency and still not close half of the budget gap? Taxes have to go up. There's no other way to balance the budget.

"tax cuts don't produce revenue."

The economy grew robustly in the '50s when the top tax rate was 90%. Taxes have nothing to do with economic growth.

Energy supply does. Since we (as a world) are having a problem growing our energy supply, it's simply wishful thinking to advocate cutting taxes. All that will do, in an energy constrained time, is increase the deficit.

(Report Comment)
frank christian June 26, 2011 | 10:47 a.m.

Mark F. As previously stated, this continual trade of statistics is an exercise in futility. The group that sides with me,is now in control of the U.S. House of Representatives. They, as you know, are insisting that tax increases not be any part of our financial picture regarding a balanced budget and reduction of our debt. You think they are wrong. I think we are at the point where a "wait and see" position would be more than feasible. We can do or say nothing and soon have our answers. This will be my position. You may choose yours.

(Report Comment)
Paul Allaire June 26, 2011 | 1:36 p.m.

Clearly even those who are asserting their ridiculous positions know the ridiculousness of the same. I personally have asserted a ridiculous position for shock value when I thought it necessary. The problem with it was that that the other person thought I was serious because I said it with a straight expression on my face. I believe that the level of seriousness that is being attached to the token ridiculousness is what separates the tea party members from the career politicians. That said, the posturing is getting quite old and is looking rather stupid at this point. I will not vote for anybody who continues to do so, whether they believe what they say or not.

(Report Comment)
Mark Foecking June 26, 2011 | 4:21 p.m.

frank christian wrote:

"Mark F. As previously stated, this continual trade of statistics is an exercise in futility"

But have you shown that they're wrong? No. That's a problem. A huge one.

DK

(Report Comment)
frank christian June 26, 2011 | 9:32 p.m.

Mark F. - Not following you. Have I shown--? Who is wrong? I'll respond, I guess, when I understand the question.

(Report Comment)
Mark Foecking June 27, 2011 | 8:27 a.m.

I'm asking if you can show that my numbers are wrong.

DK

(Report Comment)
frank christian June 27, 2011 | 10:40 a.m.

Mark - Your static numbers are not the whole story, but you are not able to consider the ability of the American people to solve their problems by getting Government out of the way, rather than waiting for it to drive them further, into poverty, "jobs" programs, "re-training schools", etc. I'm just tired of presenting facts that show the added productivity produced by "tax cuts", only to have them ignored and answered with "that tax cuts raise revenue is a myth!". "Taxes have nothing to do with economic growth." It is time, in my opinion, to stop the conjecture and see what the R's are able to do with our spending problem (more numbers you refuse to address). An example of your numbers being correct, but the rhetoric wrong. "The economy grew robustly in the '50s when the top tax rate was 90%." Ed Lotterman, economist for Gov't and Federal Res. wrote:

"Start with the situation at JFK's inauguration in January 1961. The economy was near the end of a 10-month recession. There had been two other recessions on President Dwight Eisenhower's watch, so the economy was in a slump for a combined 27 of his 96 months in office." I'd rather just "wait and see".

(Report Comment)
Paul Allaire June 27, 2011 | 12:11 p.m.

I bet a president would like to have an economy in a "slump" for 27 of 96 months. What are you waiting to see?

(Report Comment)

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