Taxes: A Way to Solve Inequality?

On the news today or any information platform, it is easy to notice that when it comes to politics a majority of those stories reflect on current political ideologies or thoughts. The days where western countries are labelled as the champion of capitalism and eastern nations as communists or socialists during the cold war are over. As more people ponder upon their basic norms and beliefs concerning their society or self, more people are drawn into the system of socialism even in the Western world. The survey conducted by Victims of Communism Memorial Foundation used YouGov polling data to assess American attitudes toward socialism and communism. The study found that 44% of millennials said they would rather live in a socialist society rather than a capitalist society (Miller, 2017). If we count communism and fascism which both are born from the same idea group of “socialism”; 58% percent of millennials said they prefer to live in a socialist, communist and fascist society rather than capitalist one. Though we might or should be sceptical of these results as they may carry the biases of the organisation. A study of similar nature held by Harvard in 2016 and polls conducted by the Centre for Independent Studies in Australia in 2018 showed the same pattern whereby the significant if not majority of millennials supported socialism rather than capitalism (Jones, 2018).

This development created a heated debate among the academia on many sectors including economics and public policy whereby the question of private property rights, taxation and income inequalities, which have been taken for granted, come under review. This paper will try to unravel the subject of tax in relation to whether it enables us to solve economic inequality and whether it is within government rights or moral. We shall solve these questions with the perspective of the wisdom contained in the word of God.

What is Taxation?

According to Investopedia (2018), Taxation is a term for when a taxing authority, usually a government, levies or imposes a tax. The phrase “taxation” applies to all types of involuntary levies, from income, to capital gains, to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an act; the resulting revenue is then usually called “taxes.” (Investopedia, 2018). The key term to focus on here is “involuntary”; taxation is a legal obligation, where it has to be followed, unlike other transactions. As we sometimes become reckless in our shopping behaviour, at least all those transactions are within our consent. Therefore, the point of tension is not whether the government has a right to impose taxes, as the majority of economic-political thoughts have agreed on the issue, even interpretations of Matthew 22:21 generally support the idea that the government, as ordained by God, has the power of taxation to support and finance its programs. Instead, the tension comes from the question whether there is a just and fair tax.

The Tension

Dr. Yaron Brook an objectivist, chairman of the Ayn Rand Institute and guest lecturer of Brown University in 2016 published a book titled “Equal Is Unfair: America’s Misguided Fight Against Income Inequality.” where he challenged the notion that the government through taxation will result in income equality that also benefited them. During his talks in 2015 in the University of Exeter, he promotes the idea that charity and other “voluntary methods” will bring income equality and prosperity instead of a government that enforced laws on the people. A similar notion is usually also advocated by free-market economists. On the other hand, other schools of economics and different models show that more taxation will fix income inequality and bring prosperity. One such model is Keynesian economics, and a modern interpretation of this would be the Nordic model. The Nordic model usually leans towards socialist elements or other forms of planned economies.

Tax Resisters

We shall use the term “tax resisters” to describe the people that disagree with the idea that taxation will bring income equality and that it is morally just. It does not mean that these individuals resist paying taxes or reject the idea of the tax. The idea that that taxes will not bring equality is shared upon many intellectuals within different groups of interest. Predominantly the intellectual bedrock of the idea can be found in Frederick Hayek and his book “Road to Serfdom” in which he described how terrible government planning was when compared to free-market economics. This idea is widely shared among the Austrian, and the Chicago Schools of economic thought, as well as many self-proclaimed classical liberals.

Some Truth

Hayek (ed. 2007, p. 113) stated that governments tend to be arbitrary in their decisions. In Hayek’s mind government planning simply cannot take into account all of the people’s wants and needs. Therefore any plan executed will undoubtedly upset some individuals; which brings into question the equality and fairness of the system. Hayek (ed. 2007, p.p.139-140) also wrote: “[A] government which undertakes to direct economic activity will have to use its power to realize somebody’s idea of distributive justice is certain. But how can and how will that government use that power? By what principles will it or ought it to be guided? Is there a definite answer to the frequent question of relative merit that will arise and that will have to be solved deliberately? Is there a scale of values on which reasonable people can be expected to agree, which would justify a new hierarchical order of society and is likely to satisfy the demands for justice?” Hayek ponders on the question whether the government has the moral and ethical right to distribute an individual’s income to another through taxation laws, since it bypasses the “voluntary” decision of individuals, and Hayek found it is hazardous to give the “arbitrary” government this power. If Hayek supposes that the government is unable to find the objective meaning of terms such as “equality”, “common good” or”social welfare” in modernist 1944, then imagine the difficulty of finding them in a postmodern and constructivist age such as today. If what Hayek claims is true, then the government would just set more arbitrary meanings towards these terms in order to impose tyranny on .

John Calvin, a renowned French theologian and reformist, was also more inclined to the idea that the ethics of love calls for us to value and protect our neighbor’s property and estate (Hall and Burton 2009, p. 76). These ethics were also demonstrated by the use of private agency and deacons instead of “enforced” government mandate (Hall and Burton 2009, p.123) This notion also approved by Yaron Brook who often said during his talks that taxes are only moral if the process is voluntary. Even though there are many economic models that also show that government tax usually result in loss of economic profit or deadweight loss, the moral argument (Arbitrariness of Fairness)  is one that most academics and members of the tax resisters holds as a bastion against socialism or any other worldview that promotes imposing high taxes to individuals to better society.

Weakness

The moral and ethics of the tax resisters are sound, but it also presupposes that the nature of man is good. The practicality of the tax resisters’ suggestion whereby people will voluntarily give something to the betterment of society assumes that humanity is by nature a “socialist.” Whereby given time, mankind will consciously give their money to public projects, simply for the benefit of self and others. The end goal of this notion only aims to confirm Karl Marx’s theory, that socialism is the last evolutionary process of humanity from capitalism. Instead, only those who hold the Christian worldview are able to escape this kind of argument. In Genesis chapter 3, it is said that man has fallen into sin and other verses such as Jeremiah 17:9 (ESV) also claimed that “the heart is deceitful above all things”. Therefore John Calvin’s as well as other reformed theologians’ vision of free voluntary philanthropy does not completely agree with the ideas of socialism or the tax resisters. Calvinism or Christianity generally addresses the problem with man’s nature first and the system second. Hall and Burton (2009, p. 63) described this well when they wrote that “anyone who begins with the expectation of a utopia will quickly become frustrated by the fallen nature of our universe.” Though this would be a more prevalent critique to socialism rather than the entirety of the liberal school of thought, it does not mean that the liberals can attain their version of a utopia, where through hard work and correct laws, social problems may be extinguished and where philanthropists are then expected to help the poor. Is this truly what happens?

Though there are many businessmen/women who become great philanthropists and act as a blessing for numerous communities, how many of these people end up in jail for fraud, manipulation, and impoverishing others? Those that deny the presence of man’s inherent sinfulness and expect the rich to willingly give out their wealth to the poor without being consumed by the greed that comes with their “private property” will only find misery and more social hatred for social welfare recipients that work and do their best in life. Hence, a state where mankind has no social welfare and where taxes are regulated by the state and rely on voluntary charities is a better idea compared to socialism, but considering the fall of man and its nature, it left society with uncertainties, inherent social problems and moral dilemma.

Tax for Equality

The recent rise of support for socialism gave way for academia and policymakers to ponder upon matters of state welfare including the viability of an economic model that shows how high taxes will benefit society. This model is sometimes called the Nordic model. However, the idea itself is not new. Ever since Karl Marx’s critique on capitalism published in the books “Communist Manifesto” and “Das Kapital,” the idea that the role of government or any centralized institution is to scrub social problems have been practiced in one form or another. For example, in Germany Otto von Bismarck, the first Chancellor of Germany (in office 1871–90), developed the modern welfare state by building on a tradition of welfare programs in Prussia and Saxony that had begun in as early as the 1840s. A more recent Keynesian economic model that influenced many governments today came from ideas crystalized in the book titled “The General Theory of Employment, Interest and Money” published in 1936. Hence, as many people were, and are even now, drawn into this concept, what can we say about the strength and weakness of this approach to deal with the social problem?

Few Truths

Biswas, Chakraborty, and Hai (2017, p. 688) wrote that modern governments had successfully utilized tax policy not only to raise capital for government operations but also to reduce income inequality among citizens. Progressive taxation with negative net tax rates for the lowest income households aims to achieve two distinct objectives: to provide a minimum level of consumption for the low-income population, and to reduce income inequality between different groups of the community. The underlying economic justification for this tax policy is that income inequality creates lower economic growth (Biswas, Chakraborty and Hai 2017, p. 688). For example, even though it is assumed that the market can recover given time, the Keynesian economic model shows that government intervention can help the people faster. Keynes (1964, p. 378) found that the creation of banking policies that influence the interest rate does not result in being sufficient by itself to determine an optimum rate of investment. There are holes in the economic system and recessions do happen, citing 2008 as an example; though arguably lax government regulations helped to cause crises similar to the Great Depression, Black Monday, Tulipmania, or the Dot-com bubble, it was market overreaction and lack of confidence that escalated these situations into world economic crises. Where there is no finance, bank closure, high rate of unemployment and other sufferings are bound to occur. Wayne Grudem (2010, p.281) an American Theologian and the Research Professor of Theology and Biblical Studies at Phoenix Seminary wrote that there is some need for government-supported welfare programs to help cases of urgent need. Additionally, it is essential to recognize that “freedom”(the phrase that often used by liberal and free-market economists as the ultimate principle to be defended) does not necessarily mean “complete freedom”, instead for there to be a successful society there must be regulation to some degree or another that ultimately will “limit” our freedom. Therefore, government, when necessary, should have a right to take an individual’s freedom to properly exact justice and correctly uphold God’s moral principle in the Bible (Rom 13:4), rather than merely protecting their “freedom”.

In other words, socialism is right on the mark when it comes to pointing out the reality that the defects in human nature causes social problems. Kuyper (2011, p. 24), Dutch statesman and churchman stated in 1891 that

“In both instances the series of misdirected actions had 2 invariable causes: error and sin. Error insofar as there was ignorance about the essence of man and his social attributes, as well as about the laws that govern human association and the production, distribution and use of material goods. Sin insofar as greed and lust for power.”

Thus, to some degree both the socialist or any other group that advocates for social equality, and Christians would agree that social problems can and have caused real suffering and is an instance where the government has a right to alleviate social suffering.

Weaknesses

With the same problem that few liberals are having where their ideology become utopian, the intervention of the government or any centralized institution will not result in the complete elimination of social problems. Hayek (ed. 2007, p.140) claimed that socialist movements do not in themselves pursue full equality, instead aiming for “greater equality”. Keynes (1946, p. 372) observed that implementation to eliminate disparities through direct taxation is hindered by the fact that companies or the rich can just move their wealth abroad and reduce their consumption overall due to lower disposable income. Hence, practically complete equality is impossible as it may result in the harm of others and self.

However, the wrong assumption of tax for equality is that all mankind entitled to the same privileges. Though some rights are shared equally such as those documented under many human rights law, “Entitled wealth” on the other hand, is not something that everyone agrees with. The biblical reason is that the covenant of works between Adam and God is still in effect. John Calvin notes on Genesis 2:15-16 that man was created and was given the task to work, and that God ordained all productive work. Calvin further stated that ”nothing is more contrary to the order of nature, than to consume life in eating, drinking and sleeping while in the meantime we propose nothing to ourselves to do.” Therefore, the sort of “equality” one should pursue is to award those who work and not penalize those who succeed, but instead encourage as many people to work. Though it is arguably easy to support the incarceration and condemnation of the rich when they break the law, the same must also be said when dealing with the poor (Deuteronomy 1:17; Leviticus 17:5). Injustice is inexcusable in order to reach an equal society for everyone. Hall and Burton (2009, p.63) remarked that public use of property rights may also lead to its overuse and abuse.

A Synthesis

Therefore, we conclude that there are both truths and weaknesses in these mainstream views, which in my opinion can be synthesized through the Christian worldview. The nature of man must be understood correctly, in which humanity is called to work, have fall in sin and is created by God. Following this, excessive welfare and tax can be easily manipulated as tools of slothfulness and tyranny while its absence results in lack of compassion and greed which both will fuel social tension and problem. Any taxation program that funds social welfare should not cause humanity to become lazy or cause some to be kept in poverty. Tax and welfare should instead be used as a tool to uphold the original calling of creation, which is work and to avoid sinning such as greed and envy over wealth. If we reflect on the early Christian congregations, they were told to help those in need and to learn from the teachings of the Apostles, in which one of them taught that those who do not work also shall not eat (Acts 2:42-47; 2 Thessalonians 3:10). On the other hand, the government should realize its duty to uphold God’s moral principle and thus able to grace those who follow the law and punish those who break it (1 Peter 2:14).

With this principle, governments must not be limited to using tax to fund its programs and punish those who do not pay their dues, but they must be able to give incentives (tax breaks or deductible or other methods) for individuals or companies to give to charities and/or responsible Churches, through their own social responsibility programs to help others. This solution will make businesses and individuals help others without feeling robbed, and the recipients will behave responsibly knowing the welfare funded by the work of their brothers and sisters, fellow creations of God and knowing that some work needs to be done for it to be eligible. Enabling society and government to work together to prevent sin, and working for the good of self and becoming a blessing of others, following God’s covenant for His Glory. (HS)

Reference

Abigail, Miller. 2018. “Survey Shows Half Of Millennials Prefer Socialism To Capitalism”. Mail Online. http://www.dailymail.co.uk/news/article-5044527/Survey-shows-millennials-prefer-socialism-capitalism.html.

Alex, Jones. 2018. “Australian Youth Lurching Left: 58% Of Millennials Favour Socialism”. 2Gb.Com. https://www.2gb.com/australian-youth-lurching-to-the-left-58-of-millennials-favour-socialism/.

Biswas, Siddhartha, Indraneel Chakraborty, and Rong Hai. 2017. “Income Inequality, Tax Policy, And Economic Growth”. The Economic Journal 127 (601): 688-727. doi:10.1111/ecoj.12485.

Grudem, Wayne A. 2010. Politics According To The Bible. Grand Rapids, Mich.: Zondervan.

Hall, David W, and Matthew D Burton. 2009. Calvin And Commerce. Phillipsburg, N.J.: P & R Pub.

Hayek, Friedrich A. von. 2007. The Road To Serfdom. [Chicago]: University of Chicago Press.

Keynes, John Maynard. 2015. The General Theory Of Employment, Interest, And Money. San Diego: Harcourt Brace.

Kuyper, Abraham, and James W Skillen. 2011. The Problem Of Poverty. Sioux Center, IA: Dordt College Press.

Staff, Investopedia. 2018. “Taxation”. Investopedia. https://www.investopedia.com/terms/t/taxation.asp.

 

 

 

 

Leave a Reply

Your email address will not be published.