A Taxing Problem, I: What is Tax Justice?

As they say, there are two things certain in life: death and taxes. At least the former only comes once. The latter is a perennial problem. It also manages to bring in discussions on politics and religion, two of the three subjects you are not supposed to discuss in polite company. (The third subject is, at least according to Linus Van Pelt, the Great Pumpkin.)

Anyway, as a follow-up to yesterday's posting (which was itself a follow-up to the posting of the day-before-yesterday) we thought we'd address some of the concerns expressed by our faithful readers in greater depth. As one of them commented, in words edited for publication,

"I see that Capital Homesteading has a floor that excludes some persons (lower income) from paying income taxes for the general support of the national government. I am curious, since everyone pays sales taxes or payroll taxes for unemployment, Social Security and Medicare, why would not the demands of equal justice require that all pay some support of the general government, say a straight tax on income?"

As we have seen, a basic principle of just taxation is that people are taxed according to their ability to pay, it being considered unjust to demand that people pay taxes when their resources are inadequate to cover their own subsistence or that of their dependents. This principle of civil society is also reflected in the teachings of the Catholic Church, which has as a precept that people are to contribute to the support of their pastors according to their means. It is considered unjust in civil, religious or domestic society to be forced to contribute, either as taxes or as a donation, anything in excess of one's ability to contribute; neither human positive law nor moral philosophy requires that we do that which is impossible.

The tax proposals under Capital Homesteading take this basic principle as fundamental to a just social order. The present system, that requires people to pay taxes in such amounts as to force them to accept government assistance to make up the difference is patently unjust, as well as obviously contrary to common sense. It is interesting to note that, before the current economic downturn, the employee portion of Social Security and Medicare taxes on the median income was approximately equal to the amount of per capita non-mortgage revolving consumer debt. In other words, the government takes away income from private consumption, which the consumer then makes up by borrowing to keep the economy limping along — wage earners were thus paying into Social Security from the first dollar of wage income, and making up the difference by using credit cards.

We propose the abolition of all taxes (especially the ad valorem ["value added"] sales taxes, tariffs, and payroll taxes that are strongly regressive) except for an income tax, and a single rate on all income from whatever source derived above a meaningful exemption sufficient to, as Pope Pius XI put it, meet common domestic needs adequately. Otherwise, all that is being done is that the State takes away in taxes what it then returns as welfare, making recipients into dependents on the State, or (as the Supreme Court put it in another context), turning nominally independent adults into mere creatures of the State (Pierce v. Society of Sisters, 1925). All sales taxes, payroll taxes, property taxes, and so on, would be merged into this single rate. If the exemption is adequate, this would result in a "typical" family of four paying no taxes on the first $100,000 of aggregate income, and an effective, if moderate progressive rate above that. There would be no special rates for property incomes, whether dividends or capital gains, with the exception that capital gains should be inflation-indexed.

The basic fact is that, until the New Deal, few Americans paid any taxes at all, except for property taxes and whatever resulted from the increase in the price of consumer goods due to the tariff. As Dr. Harold G. Moulton related in The New Philosophy of Public Debt (1943), the primacy of Keynesian economics convinced policy makers that taxation was unnecessary for raising revenue to defray government expenditures (it being believed that the public debt could safely rise to at least twice GNP (!), according to Alvin Hansen, "the American Keynes"), but that taxation was still useful as a means of "social engineering."

To be cynical, the income tax ceased to be used primarily for funding government, and was changed into 1) a means for controlling people (as Justice John Marshall noted in McCulloch v. Maryland, "the power to tax is the power to destroy"), 2) a means of encouraging saving by the rich for reinvestment in new capital, further concentrating property and power and widening the wealth gap, and, in last place, 3) revenue.

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