Are Your Taxes Just?

My brother sent me a link to the Acton Institute for the Study of Religion and Liberty. Normally I am not enthralled by economics and public policy, but this article discusses Switzerland "which has become the target of angry protests by European Union officials and sundry European politicians." Why? Because Switzerland has lower tax rates than other European states.

The most interesting part of the article, to me, discusses the morality and justice of taxes. The author, Samuel Gregg, went back to 16th century Spain to find a

rigorous discussion of the morality of tax-rates. This was sparked by rising taxation, currency debasements, and official state bankruptcies initiated by King Philip II as he struggled to suppress rebellion in the Netherlands and ward off threats to Spain’s world-wide empire.

The article continues:

Reacting to Spain’s subsequent impoverishment, Spanish theologians such as Pedro de Navarra insisted that it was not enough for governments to legislate a tax for it to be considered just. Tax-laws, they argued, must meet other criteria of justice. Was there a genuine need for a new tax? Were the proposed taxes proportionate and equitable? Were they moderate or excessive? The same scholars claimed that imposing taxes to support wasteful government expenditures was immoral, even tyrannical. In some cases, they added, people could rightly refuse to pay, especially when taxes were taking nations to the edge of financial ruin.

I remember some years ago a discussion on whether it was right for a Italian citizen not to pay his full taxes if the average taxpayer in the nation paid only 40, 50, or 60 percent of their total taxes. One Church moralist concluded that if the truthful taxpayer paid 100 percent when most other citizens paid only 50 percent on the average, then the noble taxpayer was being unfairly assessed his share of the tax burden. I don't remember how the debate ended, but the argument seemed logical to me.

Some will note that two wrongs don't make a right, even when it means honest people pay an inordinate share of taxes because of others' lies about their actual incomes. However, I believe the burden should be on the state to justly assess and then rightfully enforce the collection of taxes, rather than allowing some people to avoid paying what is due.

Or much better, the state should first reduce the tax rates before beginning real enforcement. Recovering the annual tax gap of over 300 billion dollars in the U.S. would mean that everyone would be assessed a fair share and most if not all of the budget deficit would disappear. [Of course, that would never happen because Congress is notorious for always looking at new ways to spend more money!]

Some years ago I served on a jury that decided on the merits of a civil lawsuit. The jury determined the plaintiff had exaggerated his claims. Moreover, evidence showed that he made significantly more money than he reported on his income tax form--leaving jurors wondering how much they could trust him (that and a few other things he said!) The jury finally recommended a settlement equivalent to what the insurance company had previously offered the plaintiff. In this case, the man's lies did not create an advantage for him and a disadvantage to the insurance company (and to insurance holders who would have had to pay higher rates). But the man cheated on his tax return, meaning the rest of us paid an unfair share of the total tax burden.

Since that time a burgeoning underground economy has arisen in which workers do not pay income taxes, mostly because they are paid in cash and do not report their income which is estimated at 1 trillion dollars a year. A recent and thorough analysis of the size and characteristics of the underground economy is found in a New Jersey news article published here. The article recognizes that the underground economy is firmly rooted in illegal immigration, yet presents a sympathetic view of the immigrants themselves. My own sympathy is with taxpayers who pay their 100 percent when others cheat and pay nothing. The increasing rate of non-compliance is very bad news for the future of our country, especially when combined with immoral assessment of taxes--as was discussed by the Spanish moralists of the 16th century.