A Fair Tax Is Better for the Soul

Recently, a number of Catholic religious leaders protested against the Speaker of the House, John Boehner (R-OH), a fellow Catholic, as the commencement speaker at the Catholic University of America. Their gripe: His proposed budget cuts would reward the wealthy while cutting programs for the most vulnerable (a relative term). They signed a letter pointing out that Boehner was at variance with Church teaching — the implication being that anyone who does not favor an entitlements-based liberal economic agenda is not following the gospel.

This belief unfortunately gained traction by a misinterpretation of the phrase “preferential option for the poor,” made at the Latin American Bishops’ Conference at Medellin, Columbia, in 1968. It was quickly bandied about by Liberation Theologians as an ecclesiastical economic and political manifesto. It was, however, an evangelical call for personal conversion of both the poor and the rich, which the bishops believed to be the key for greater justice and charity.

The fact of the matter is that Jesus never put forward any public policy proposal other than, “Render unto Caesar what is Caesar’s and to God what is God’s.” Consistent with this, we can presume Jesus paid His taxes to the state, and we know for certain that He paid the Temple tax with the coin that He had Peter retrieve from the mouth of a fish.

Jesus’ call is for personal salvation. Individual charity is an essential part of His teaching. In the Gospels, concern for the poor is not only demanded, but those who do not care for them are threatened with damnation — recall the story of Lazarus and the Rich Man or the Parable of the Separation of the Sheep from the Goats.

To give freely from one’s own purse is part and parcel of the gospel’s call for compassion and self-denial for the good of others. Its mandate benefits both the receiver and, more so, the giver. Government entitlements do not have this capacity: firstly, because government handouts do not allow the recipients to grow in responsibility for themselves or the national franchise; and secondly, because their funding is involuntarily procured and indirectly allocated.

Corroborating the above assertion, Princeton University Sociologist Robert Wuthnow, in his 2004 book Saving America: Faith-Based Services and the Future of Civil Society, found that government welfare programs have little effect on changing the lives of their recipients. On the other hand, aid supplied by caring organizations, especially churches, has a more comprehensive impact on transforming the lives of those they serve.

Currently, 47 percent of Americans pay no income tax. Yet we can presume that many of these people are voters who are claiming a say or a share in the distribution of their fellow citizens’ wealth. This group not only includes the non-contributing poor but those who have taken advantage of tax loopholes. Can anyone legitimately believe that they are being Christian by voting to spend or, by a sleight of hand, take other people’s money?

 

As one of its precepts, Catholic social teaching has a concern for the common good. This demands that everyone should contribute to society according to his or her means. A solution for this is to institute the “fair tax,” or a national sales tax that would do away with the federal income tax on personal and corporate income. It would force more people to live within their means and inculcate the virtue of frugality, which is sorely needed in a society with a $14.3 trillion national debt. And, most importantly, it will give everyone some skin in the allocation of revenues being disbursed.

It was not until the Sixteenth Amendment was passed, in 1913, that a federal income tax could be levied on individuals. The Founders envisioned that the monies for running the government would be raised by imposts on foreign goods, on some domestic products (e.g., whiskey), and assessments on the states. A consumption tax would, therefore, be more in tune with the original intent of the Constitution.

The fair tax would not end the need for some government aid to those who fall below the poverty line. However, it would greatly curtail personal excess by rich and poor alike, as well as the free spending of other people’s money. It would cut down on tax cheats, tax shelters, and charitable deductions for eccentric causes, all of which add up to billions of dollars in lost revenue. It would also require illegal aliens, now numbering more than twelve million and not paying taxes, to contribute toward the services that they are consuming without cost. Finally, it would greatly simplify the now 3.8 million-word U.S. tax code, which lends itself to confusion and political chicanery.

A fair tax would lend itself to greater honesty and may even give more people a chance to fulfill the gospel mandate of personal charity and thereby save their souls, something government programs can never hope to accomplish.

By

Father Michael P. Orsi was ordained for the Diocese of Camden in 1976. He has authored or co-authored four books and over 320 articles in more than 45 journals, magazines and newspapers. He holds a Doctorate in Education from Fordham University, two Master degrees in Theology from Saint Charles Seminary, and a Bachelor of Arts from Cathedral College. He is presently serving as Chaplain and Research Fellow in Law and Religion at Ave Maria School of Law, Naples, Florida.

  • Gian

    Your use of phases such as “other people’s money” is not neutral and presupposes a libertarian Taxation is Theft view.

    • LV

      The phrase “other people’s money” is used specifically in conjunction with the 47% of Americans who pay no income tax at all (but who demand their slice of the pie anyway).

      The underlying view is not that “Taxation is Theft,” but that everyone should pay something, so that everyone has a stake in the outcome.

    • Cord Hamrick

      Moreover, Gian, taxation is theft whenever there is a non-zero percentage of tax collections which is used to pay for activities outside those the people authorized (or could authorize) their government to conduct.

      This is unquestionably the case in the modern United States. The document through which the people of the United States (past and present) delegate authority to the government is the United States Constitution…and of course any formal delegation of authority is to be construed according to the intent of the person doing the delegating at the time he is delegating it. (That much is the minimum requisite for intellectual honesty.)

      But a tradition of interpretation of the Constitution of the United States divorced from the original intent of the authors of its various sections and amendments has been used to justify anachronistic interpretations which add to Federal power at the expense of the states and the people, in violation of the Tenth Amendment. This produced legislation which is illegitimate because the Constitutional amendment process which alone could have granted the Constitution power for its passage was never followed.

      The funding of such mandates is theft.

      I bring this up to make a distinction. Libertarians, conservatives, some liberals, and simply honest people all categorize the above as theft. You are correct to note that they sometimes use that word. Well they should: It’s factual.

      But Libertarians, contra your characterization, do not categorize all revenue gathering as theft. That’s a straw-man: It’s on the level of claiming that Catholics worship statues.

      No. Libertarians characterize government’s use of force as legitimate when:

      (a.) It involves a morally legitimate power which originally inhered to the people; and,

      (b.) The people lawfully delegated that power to the government through the Constitution; and,

      (c.) The government enacted legislation making use of that power without exceeding the limits of that delegated to it by the states or the people.

      Any collection of revenue within those bounds, therefore, is legitimate. Even then, it may not be wise (not everything which is permissible is beneficial, as St. Paul notes) but it at least is not a usurpation.

    • Gail F

      But taxes ARE other people’s money. You earned the money you pay in taxes; it’s your money. If I don’t pay taxes but I also don’t get any services from taxes, I am receiving a tax break. If I don’t pay taxes but I receive food stamps, housing vouchers, etc., then I am receiving other people’s money. It has nothing to do with theft.

      It is not neutral to say taxes are the government’s money — the money comes from somewhere.

  • Chris

    The FairTax would help to solve many of the structural issues our nation currently faces.

    Our current tax code discourages earning income and saving money. The FairTax would encourage saving and discourage out of control spending. Its that simple.

    A common sense change that would go a long way towards getting us back on the track to a sustainable, growing, economy.

    When one looks into the details it is hard not to be a passionate proponent of the FairTax.

  • Tyler

    Fine article, but the headline is wrong. This article treats the idea of the “Fair Tax,” and a”Flat Tax” is another idea altogether.

  • Kathryn

    Could someone explain to me exactly what a “preferential option for the poor” is?

  • Eric Pavlat

    The Fair Tax is a program worth considering. There are two main points I think worthy of discussion:

    1) The Fair Tax would be so large and so visible that it would encourage not only additional shoplifting, but the development of a “black market” in the U.S. The stores would need additional security measures (out of their pockets), and the government would have to spend a lot of resources shutting down the different illegal marketplaces.

    2) The Fair Tax would hit small businesses disproportionately. For example, right now, if I want to buy a fancy power drill, I can get it for $100 at the local hardware store or $85 at the big-box chain–a difference of $15. After a 20% Fair Tax, though, we’d have to pay $120 locally or $102 big-box, a difference of $18. In other words, the Fair Tax expands the impact of the discounts that the chains and oligopolies can offer, putting the small businessperson at a competitive disadvantage.

    These aren’t firm objections, you understand; merely concerns I’d like to see addressed before signing on.

    • Florin

      I’m not sure i understand the ‘Fair Tax’ – what about seniors living on social security – barely getting by. They worked all their lives and now they would have to pay a huge tax each time they purchased something at the store – or am I not understanding?

      • Cord Hamrick

        Florin:

        One thing to realize about the FairTax is that the consumption tax is intended to replace the income tax, including the income taxes on businesses (and the relevant tax-accounting, tax-preparation, and tax-withholding expenses…which any business owner will tell you are a significant part of the cost of doing business).

        Advocates of the FairTax thus point to some studies (I vaguely remember some Harvard economist or other, but I’d have to look up the details) showing that consumer prices would probably rise only by a couple of percentage points for most goods, and might fall in some cases. This seems counter-intuitive…like getting something for nothing…but it is a consequence of how business taxes have always been passed on to the consumer. Take that part of production cost away at the same time that you levy a tax, and the one will at least partly offset the other.

        I do not, myself, think the FairTax is ever likely to pass, but I believe this for purely political reasons. It is too easily-caricatured: “Oh noes! A giant tax increase on everything we buy! And all the rich people will suddenly not have to pay income tax!” Absurd complaints, of course, once you understand the system…but we are speaking of an electorate which uses Jon Stewart as their primary source for political news analysis.

    • Brian M

      Eric, to your point #1 – Since there w/b little to no increase in prices at the retail level, how do you support your claim of additional shoplifting. Also, since over 80% of retail sales are conducted through large chains such as HomeDepot, Krogers, etc. just how big will the black market be that you suggest? And do you honestly say that our present system is without corruption?

      Then to #2 – Again, with no material/general change in retail prices, there is no change in the pricing relationship between your local hardware store and the big box store. It is important to keep in mind that the FairTax is not an addtional tax; rather, it replaces existing Federal income based taxes. So the 23% of current retail prices which reflect the income taxes against the workers and the corportions are instead replaced with a 23% ‘fair tax.’

      To get better and more complete information then what I am capable of, I recommend referring to http://www.fairtax.org and ‘About the FairTax.’ This helps us to move move from a conversation based on some level of hyperbole to one based on facts.

      • Cord Hamrick

        Brian:

        I’m glad you recommended the fairtax.org website; it’s useful for continuing these discussions in an informed way.

        But, I think you may overstate your reply to Eric’s first point.

        I agree with you that, provided that FairTax supporters are correct in saying the change in retail prices will be minimal, there will be no immediate psychological increase in shoplifting incentive. But there will be, at the margins, an increased incentive to go black-market, and sell things without the tax.

        For of course the issue is not whether prices will rise by much. Apparently they won’t — if the studies are to be believed, and they seem plausible — but economic behavior is all about opportunity cost. Over time the short-term psychological reality that prices have only changed slightly will become insignificant. What will be significant will be the realization that, if one can circumvent the tax, prices will be 23% lower (or 30%, depending on whether you calculate inclusively or exclusively).

        So I think there will certainly be an increased incentive towards off-the-books, cash-only business.

        And I don’t think the observation that most sales are currently done by large retailers — who’re so high-profile that they couldn’t plausibly risk trying to circumvent the tax — is the best pro-FairTax response to this increased black-market incentive. It’s true that currently big retailers make up most of the sales. But once economic incentives change, would that remain true? The economy would evolve over time to find a new balance as people’s decisions changed on the margins. It seems likely that the evolutionary direction would cut into the market-share of big retailers in favor of those small enough to circumvent the tax.

        The better pro-FairTax response, I think, is to say: Granted that there would be increased incentive for off-the-books business…so what? There is currently incentive for off-the-books income. That incentive would vanish as soon as income was no longer the tax base. That it would be replaced by a different kind of circumvention would not alter the overall reality of circumvention.

        The only real difference with respect to circumvention between the current tax system, which taxes income, and the FairTax, which taxes consumption, is this: People who make their incomes illegally do not report their income, and thus live tax-free…but even prostitutes and drug dealers have to eat, and thus cannot avoid paying a consumption tax.

        Not a bad argument, that.

  • Don Schenk

    I’d have no problem with a flat tax if it really was flat, say a taxation on all forms of personal income (including Social Security and Capital Gains) with, say, a single loophole of a personal exemption of $10,000. But the billionaires who control our tax system wouldn’t allow it. (For instance, the “flat tax” that Malcom ‘Steve’ Forbes Jr. is pushing for would leave him with no tax.)
    And I’m pretty sure that the so-called “Fair Tax” would only apply to the neccesities of life, because billionaires will refuse to allow yatchs and stocks to be taxed at the same rate as food and clothing.
    In the same way, the so-called “Free Trade” that destroyed our industrial base is a series of one-sided trade deals in which we’re “free” while countries like Red China place embargoes and tariffs against American-made goods.

    • Brian M

      Don, you may have some valid points regarding the Flat Tax. However, this article – though inappropriately titled as noted elsewhere – is about the Fair Tax, not the Flat Tax.

      As for claiming the Fair Tax would only apply to necessities and not to yachts, what is your source?

      • Don Schenk

        Brian M,
        If you have any doubt that the suporters of the so-called “fair tax” won’t allow capital gains, stock purchases, or inheretences to be taxed, asked one of them.

  • Gail F

    I had a long talk about this recently with someone who is in charge of taxes for a large, multi-national corporation. He was very enlightening. He said that a flat tax is a great idea in theory, but what happens when it is tried is that politicians begin fiddling with it almost immediately — exempting this and that product, and this and that population — which has resulted in the very high VAT taxes and similar taxes we see in nations that have them. For instance, he said that when Canada adopted its flat tax it was much lower than it is now and wiped out the country’s deficit in a few years, but now the deficit is back, the tax is high, tax laws are complex, and the “underground” economy (which was formerly low because Canadians tend to be very law-abiding) has skyrocketed. I haven’t read up on the Canadian tax laws yet, so I am just going by what he told me.

    It’s one thing to pass a law, it’s another thing to stick to it.

    • Brian M

      Valid concerns I think. The FairTax is no panacea. It would still require keeping a sharp eye on politicians. However, at least with this approach, their tinkering w/b much more obvious. As it is, our current tax code is riddled with tax loop holes, worse than Swiss cheese. I’m a CPA for 24 years now, so have some sense of this.

      As for Canada, their VAT did not replace the income tax. So quite a different model – making comparisons problematic. As an aside, I am a Canadian, though in the USA for years now. With parents and most of family still up there and highly engaged in the economy, they have not observed the rise in the underground economy your friend spoke of. It w/b interesting to see some study results on that. BTW, we’ve had tax evasion for years here in the USA, where people avoid paying taxes on income. I understand there are many people, especially in the trades and agriculture sector, that take payment for services and do not report the income to the IRS. So I’m not sure things would fundamentally change in this category, unfortunately.

      As for they’re deficit, we should be so lucky. Canada has an accumulated federal debt at 30% of GDP, a number so low we’ve not seen it in a generation here in the USA. And there current year deficit, even in proportional terms, still pales in comparison to ours. BTW, I’m not for a moment suggesting we emulate Canadian tax law.

  • Michael PS

    All the countries of the European Union are required to operate a Value Added Tax.

    In the two countries where I spend most time, France has a current rate of 19.61%, with a 5.5% rate for food and books (the food of the mind!) and 2.1% for certain prescription drugs. In the UK, the rate is 20%, but there are more Zero-rated and Exempt items, the most significant being food, children’s clothing, public transport and books and periodicals.

    The greatest legal problem has been what lawyers call “territoriality,” determining the place of supply of services and, to a lesser extent, the date of supply of goods and services under on-going contracts. The most common fraud is in connect with exports. It is not particularly cheap to administer and police.

    In both countries, certain very small traders are exempt from charging the tax, but then, they cannot recover their input tax (the tax they pay to their suppliers) which a registered trader can, so the effect is trivial. Many

    Both France and the UK have a plethora of other taxes, including income tax, corporation tax, capital gains tax, inheritance tax, land taxes &c

  • Cord Hamrick

    By the way…

    Isn’t it odd that this article, and the ensuing discussion, is about the Fair Tax, yet the title of the article misleadingly suggests that it’s about a Flat Tax? (A term which normally means a flat tax on incomes?)

  • Cord Hamrick

    In reply to those who argue against tax reform (of any kind) on the basis that, a few years later, the improved and simplified tax system is always altered to be less beneficial and re-complicated:

    This is true.

    But what of it? One can still be better off, for having had a few years under a sensible code.

    The tendency of politicians to fix what ain’t broken (and in fixing it, generally, to break it) is perennial. Poverty is significantly greater in the U.S. than it otherwise would be because of the War on Poverty. Our currency is devalued because of activity intended to help liquidity; we are thus marginally more able to move dollars around, but the dollars we’re moving aren’t worth moving. FDR’s ignorant but well-intentioned attempts to help the American economy during the Depression probably lengthened it by years: The New Deal was a raw deal indeed, and the jurisprudential impact of the court-packing coup against the Constitution remain today in Dadaist interpretations of the Commerce Clause and the disconnect between legislative activity and the enumerated powers of the government.

    So:The American kind of government is the worst in the world, except for all the others, but, again, what of it? That’s what economists might call “sunk cost”: It’ll be that way whether we try to reform the tax code or not. But better to reform the code and have a good code for a little while.

    Indeed, perhaps if we can set the politicians to work undoing the good changes made to our tax code, they’ll be too distracted, for a little while, to continue undermining public morals and family life!

  • http://www.crisismagazine.com Brian Saint-Paul

    With the permission of the author, we’ve changed the title from “Flat Tax” to “Fair Tax.”

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