Increasing Tax Fairness

Resisting the Creed of Greed (Part II)

Click Here for Part I’s indictment of those pushing through the current tax plan.

The short answer to the current Administration’s tax cut proposal is: “No.” The plan is just a way to reward greed and not to build up our country’s economy. Tax cuts for the rich are not a justifiable reason to increase public debt. We salute the 400+ millionaires who appeal for their taxes not to be cut.^[1]

But it is not enough to argue against the “cut taxes on the 1%” proposal, however ill-thought its impacts; there needs to be a constructive alternative.

In the years since the economic downturn of 2008, aware of the stagnation of working and middle class wages since 1975, the ecumenical churches listened to the families being squeezed and vocations crushed. We saw wives joining husbands in the workforce, and then both piling on debt to live up to even modest dreams. At the same time, wealth became more and more concentrated at the top, and the wealthy congregated more and more in economically segregated enclaves. For documentation of this recent economic history and proposals, see World of Hurt, Word of Life: Renewing God’s Communion in the Work of Economic Reconstruction.^[2]

I use policies of the Presbyterian Church (U.S.A.) in particular because they address corporations as well as individuals, reflecting a membership that includes many persons who work for transnationals, and go into more detail than most churches’ comparable statements. Not all will agree with what their church’s General assemblies have said, but we welcome a moral engagement with the issues from all corners. The Presbyterian policy has a clear set of policy goals designed to help provide jobs, deal with immigration and trade, deepen productive (and generally non-military) investment, and shift toward a greener future (end fossil fuel subsidies). It argues for strengthening families, though not with the highly debatable classification of the fetus as a person for certain tax reasons smuggled into the bill.

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We do public policy because individual charity has never been enough—a clear teaching going back to the community codes of Deuteronomy.
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Some of the prosperous have defied the spirit of entitlement that leads to the abandonment of inner cities and rural areas, and refused to accept salaries hundreds of times those of the working poor, juggling their multiple minimum wage jobs. Having been a pastor myself in a well-to-do area, I do not underestimate the giftedness of talented managers and investors, but my congregation would have died if all we did was celebrate personal gifts. The church is—among other things—a place to grow a conscience, to see that giving and truthfulness are at the heart of reality. Yet we do public policy because individual charity has never been enough—a clear teaching going back to the community codes of Deuteronomy.

The latest Presbyterian taxation report was written largely by volunteer experts in accounting, tax law, economics, ethics, and fund management, assisted by a consultant from the Tax Justice Network. The team built on the earlier report, recognizing the fundamentally intertwined problems of inequality and poverty stunted the lives of millions of US Americans and reduced the productivity of our economy. This backgrounder is based on that report, Tax Justice: A Christian Response to a New Gilded Age.^[3]

So, to get down to the tacks of tax justice:

If “taxation is the price of civilization,” then just taxation is the more precise cost of a democratic society.^[4] In the words from the preface adopted by the General Assembly:

“It is a basic mark of a healthy social order that all share in the society’s benefits and burdens. Just taxation is a foundational part of a moral society’s answer to poverty … Each citizen has an affirmative duty to contribute to the common good by paying their fair share of taxes. … The church’s moral claim recognizes the reality that even the greatest individual fortunes depend on the shared goods of physical and institutional infrastructure, governance, social peace, and intellectual capital built up over years of civilization.”

The report applies five principles: progressivity, transparency, solidarity, sustainability, and adequacy. These principles stand against the “race to the bottom” that destroys solidarity, ignores environmental stewardship, and denies adequate revenue for government to do its job.

Tax policy can get complicated as there are devils lobbying for every detail. The big subsidies are masked as “tax expenditures,” exemptions and deductions, by which corporations and wealthy individuals can pay little or less than nothing through careful “tax planning,” a nice way to say tax avoidance. The share of tax paid by corporations has declined markedly in the US because profits are booked overseas and then parked overseas, waiting for a “tax holiday” to reward the out-sourcing and off-shoring of operations, stacking the deck against smaller and more national businesses and regular citizens. Tax avoidance helps make the tax code regressive, along with the interest deductions (favoring those with bigger mortgages and casino-sized debts) and preferential treatment of interest income over “earned income,” the kind that is subject to withholding of payroll taxes. Major international corporations, despite the current “statutory” 35% tax rate, generally pay at most 10% and assist their top managers in structuring their lavish salaries—deductible to the corporations—as well.

Tax avoidance is not tax evasion, which involves hiding income and wealth, and which is illegal, if the IRS is funded enough to catch it. There is a massive tax haven industry involving many smaller countries and several US states where as much as $5 Trillion is concealed by “secrecy jurisdictions,” effectively allowing the owners to abandon all moral claims of their home or adopted countries. The Panama Papers—leaked documents from one tax haven law firm—reveal oligarchs of all nations and “shell corporations” nominally locating fortunes in places like Panama, though of course their shares are earning profits in London, Hong Kong, and New York.

The impacts of tax avoidance and tax evasion were offset a bit by the tax added to the wealthy to pay for Obamacare subsidies to the private insurance system (noted in Part I), and by the alternative minimum tax, which (at 28%) is arguably a middle class tax bracket. Because the new tax law is seen as opening many potential loopholes due to the speed of negotiation (without public hearings), the alternative minimum tax is likely to be very important to prevent gaming of any new system, and a similar minimum tax for corporations is also proposed to prevent even larger tax dodging by major multinationals. Federal inheritance taxes, mentioned in principle as a brake on the class effects of inequality, cap out quickly on their rates and are thus highly regressive, reinforcing a system that really does favor the 1%– and even smaller fractions of the billionaire group.

The current Administration proposals reinforce the 1% tilt:

“The Tax Policy Center found that taxpayers earning in the top 1 percent would receive a larger percent tax cut than those in lower income levels. By 2027, those in the lowest 20 percent would pay higher taxes… [and] would impose higher taxes on 31 percent of middle-class households…” ^[5] (Amadeo, n. pag.)

How does our church advocate unrigging this system? Here are some of the basics:

1. On individual taxation, the first goal is to stop giving preferential treatment to interest income on things like dividends and capital gains over “earned” income such as salaries and wages. The “carried interest” tax rate of 15% favors hedge fund managers above all, and may be raised slightly in the current “reform,” but should be eliminated. Sales taxes and other flat taxes should be minimized as they are regressive, hitting poorer consumers proportionately harder. Capping mortgage interest deductions would reduce the wasteful size of McMansions, and lifting the cap ($117,000 in 2014) on Social Security withholding taxes would extend Social Security’s stability without increasing retirement age. While some cap should be in place on mortgage interest deductions, however, the current proposals to eliminate or drastically lower these deductions would penalize those in high cost of living cities with expensive housing, especially on the coasts (which tend to vote Democratic).
2. On charitable gift deductions from the 25-30% of taxpayers who itemize, religious and all other non-profits benefit and need to show that they clearly contribute to society and avoid partisanship in their public witness. Charitable gift giving may decline if the standard deduction is increased and inheritance tax eliminated, and a big threat is “donor-managed” charitable trusts that never actually do much charity. “Social welfare organizations” should at least have to disclose their donors and ideally should not be allowed to channel any political contributions. This position would retain the “Johnson Amendment” against pastors and congregations being able to endorse candidates and contribute to campaigns, which provides a limited check on politicizing religion in a partisan way, while allowing issue focused advocacy as a percentage of their activities.
3. For corporations and “pass-through” partnerships, the issue has not been the official tax rate but the sheer quantity of deductions, lack of transparency, and danger of using corporate entities to shelter income, reinforcing the extreme inequities in corporate compensation. The Presbyterian report is not opposed to reducing the statutory rate in a reasoned way, provided that the taxable “base” is increased in a way fair to all companies. The lowering of rates for “pass through” entities would invite many companies and individuals to convert to this form to reduce taxes further.
4. With regard to tax competition at home or overseas, playing off jurisdictions for tax breaks and secrecy is a recipe for corruption and conflicts of interest. All “tax expenditures” should “sunset” within limited time frames and be subject to rigorous, community-based cost/benefit analysis. Particularly in developing nations, there is a need for more standardization, transparency, and enforcement if the populations are to benefit from their countries’ natural resources. Rational international regulation could be paid for by tiny “Robin Hood” taxes on financial transactions, which would reduce speculation and the danger of market shocks. Note: About 2/3rds of dividend income goes to pension and other nonprofit entities and so is not “double-taxed;” private investment funds have benefited from the Consumer Finance Protection Agency and rules preventing churning and self-dealing by brokers, although this body is being weakened by the new Administration. The worry is that deregulation may again leave taxpayers liable for over-leveraged banks and corporations engaged in complex malfeasance.
5. Estate taxes should be retained and made more progressive, in part by eliminating the “step up in basis” for inherited assets, which exempts large amounts of capital gain. From a Christian standpoint, there is an issue of human dignity when wealth differentials divide the human community and disadvantage the poor, as in school districts funded by property taxes in low-income areas. The patterns of dynastic wealth also have political consequences when there are no limits on contributions to elections. Estate taxes are hardly the general taxes on wealth which middle and lower income citizens face in property taxes. Repealing estate taxes would be an invitation to dynastic oligarchy in the United States.
6. Green taxes should encourage reduced consumption of non-renewable energy and more investment in energy efficient transportation, agriculture, industrial infrastructure and design. Higher gasoline and other carbon taxes need offsets for poorer consumers but need to reflect the scientifically documented costs of externalities, of which the greatest environmental threat to humanity is climate change.

This is a highly condensed rendering of a more nuanced and substantial church report. By Presbyterian tradition, church members are free to disagree with all or part of what General Assemblies say, but there has to be some effort to state an ethic of public responsibility. Thus taxation is seen as part of a social covenant of mutual obligation among all citizens, rich and poor, who work together in a government that serves the common good. This is far different from a “beggar your neighbor” contract among consumers whose government exists only to punish and make war.

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For those who want to build a more sustainable democracy, we share a conviction that fairer taxes are the way to go.
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Is it unrealistic to advocate a tax approach directly at odds with that generally welcomed by the political party in power? No, the church’s policy was written during a different party’s presidency and, more to the point, reflects a position more populist and more popular, if we were to govern based on opinion surveys in which majorities favor the rich paying more tax. But the church’s work does not appeal to class resentment; rather, it appeals to the consciences of thinking and believing citizens of a commonwealth. For those who make hatred of taxes an article of faith, we are very skeptical. For those who want to build a more sustainable democracy, we share a conviction that fairer taxes are the way to go.

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AUTHOR BIO: General Editor Chris Iosso has been ordained (Elizabeth Presbytery in NJ), inducted into General Assembly Mission Council service in NYC, and educated (Johns Hopkins—BA, Princeton—MDiv, and Union (NY)—PhD, Seminaries) in the print dispensation. After serving as a pastor and parent of three in Westchester County, NY, he returned to the PMA as Coordinator of the Advisory Committee for Social Witness Policy. He is married to chaplain Robin Hogle. Beyond books, he enjoys running, kayaking and soccer.

^[1] Long, Heather. “More than 400 millionaires tell Congress: don’t cut our taxes.” The Washington Post. https://www.washingtonpost.com/news/wonk/wp/2017/11/12/more-than-400-millionaires-tell-congress-dont-cut-our-taxes/?undefined=&utm_term=.d1fee9e4e54e&wpisrc=nl_most&wpmm=1

^[2] “Presbyterian Church (U.S.A.). World of Hurt, Word of Life: Renewing God’s Communion in the Work of Economic Reconstruction. (2012). https://www.presbyterianmission.org/wp-content/uploads/2-world-of-hurt-word-of-life-2012.pdf

^[3] “Presbyterian Church (U.S.A.). Tax Justice: A Christian Response to a New Gilded Age. (2014). https://www.presbyterianmission.org/wp-content/uploads/1-acswp_tax_justice._42-2014.pdf

^[4] The quote is attributed to Justice Oliver Wendell Holmes but occurs in print for about 100 years previously in various forms, including one by Presbyterian minister Joseph Alden: “A man’s taxes are what he pays for the protection of his life and property, and for the conditions of public prosperity in which he shares. He ought to pay his just portion of the expense of government.” In Christian Ethics or, The Science of Duty (NY: Ivison, Phinney, Blakeman, & Co., 1866).

^[5] Amadeo, Kimberly. “Trump’s Tax Plan and How It Would Affect You.” The Balance. https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968. Citing Tax Policy Center: “Distributional Analysis of the Tax Cuts and Jobs Act as Passed by the Senate Finance Committee.” http://www.taxpolicycenter.org/sites/default/files/publication/148831/2001605-distributional-analysis-of-the-tax-cuts-and-jobs-act-as-passed-by-the-senate-finance-committee_1.pdf?wpisrc=nl_finance202&wpmm=1