Recent tax proposals have let loose the dogs of economic war. While debate has raged over the impact of tax cuts on growth and revenue, the moral case for low taxation remains largely neglected.
Critics have predictably launched an all-out assault on the idea that taxpayers should keep more of their own money. One op-ed bemoans the “alchemistic belief that huge tax cuts can pay for themselves by unleashing faster economic growth.” Another decries the alleged lack of financing to “pay” for tax cuts, while further deriding them as mere “benefits for the wealthy.” Others have abandoned evidence entirely and resorted to personal attack. “When power meets greed, you can bet, the schmucks in the red hats will pay,” snarks one such commentator.
Tax reform advocates have rightly refuted these tired and often evidence-free attacks. For instance, hard facts demolish the farce that tax cuts uniquely benefit the rich. In percentage terms, tax reductions have historically tilted toward lower earners. As Thomas Sowell has pointed out, the slogan “tax cuts for the rich” should be labeled “tax lies for the gullible.” Furthermore, talk of tax cuts “paying for themselves” is disingenuous.
A lower tax rate may mean lower revenue, but less revenue is not the equivalent of government expenditure. Government spending must be “paid for,” but taking less of a worker’s income “costs” nothing, as the income earner—not Uncle Sam—has the right to the fruit of his labor. To argue otherwise means income first belongs to the state, not the individual. Remarkable that a country whose founding creed was “no taxation without representation” would lose sight of such an elementary truth.
Moreover, whether lower taxes translate to higher revenue depends on the tax cut in question, but what is clear is that heaps of evidence—including a study by former Obama administration economist Christina Romer—show that lower taxes boost economic growth.
Important as these matters are, however, the case for reduced taxation is also compelled by moral considerations.
Every generation of Americans has understood that taxation is a fact of life. Ben Franklin famously remarked that in life “nothing can be said to be certain, except death and taxes.” However, our founders worked to keep taxes limited and uniform. “[A]ll duties, imposts and excises shall be uniform throughout the United States,” reads the U.S. Constitution. [emphasis added] That is why they not only rejected progressive income taxation, but income taxation entirely. The early republic instead applied taxes primarily to goods, which provided maximum personal choice (to avoid the tax one could avoid purchasing the product).
This vision generally held until the early 20th century, although there were two brief experiments with an income tax prior to that period. The first involved income taxation as high as ten percent during the civil war, which was repealed shortly thereafter. The second was in 1894, when congress passed an income tax that applied to the top two percent of wealth holders. However, it was quickly struck down by the Supreme Court as unconstitutional. As historian Burt Folsom notes, “At age 77, [Stephen] Field,” who was a Supreme Court justice at the time, “not only repudiated Congress’s actions, he also penned a prophecy. A small progressive tax, he predicted, ‘will be but the stepping stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich.’”
That prophecy became reality in 1913, when a constitutional amendment cleared the way for progressive income taxation. Beginning at a modest 7 percent, the top rate didn’t remain there for long. It quickly rose to 24 percent, before jumping to 63 percent under Herbert Hoover. It reached 90 percent under FDR, who proposed raising it to a breathtaking 99.5 percent in 1941. Thankfully, his proposal was rejected and the top rate declined in subsequent decades. Today it stands at 39.6 percent.
But there are at least three moral reasons for lower taxation.
First, bigger government means less individual generosity. The more of our money government consumes, the less we give to private charities and local community members in need. Jonathan Gruber, an economist from MIT, conducted a study of the New Deal government in the 1930s, and concluded that private charity spending “fell by 30% in response to the New Deal, and that government relief spending can explain virtually all of the decline in charitable church activity observed between 1933 and 1939.” Another study of charitable giving from 1965 to 2005 “showed that increases in state and local government welfare and education spending do reduce charitable giving.”
Second, benevolence with other people’s money is no virtue. Advocating higher taxes on others to pay for government programs may make us feel good, but virtue requires self-sacrifice and personal generosity. Relying on the state gives us the luxury of feeling good about ourselves without having to do good.
Third, government aid is often less effective at lifting the destitute. Private charities make distinctions between people who truly need help and those who do not, as well as between those who need material assistance and those who need moral refocus, personal counseling, relationship repair or spiritual commitment. Government, no matter how well-intentioned, does not and cannot make such distinctions.
In his ground-breaking book, Losing Ground, Charles Murray documents poverty steadily declining through the 1940s, 50s and 60s, before government’s “War on Poverty.” Afterward, however, the trend reversed. According to government’s own figures, the poverty rate has failed to drop after 50 years and $22 trillion in anti-poverty spending. As social scientist Marvin Olasky notes, the failure is attributable to government’s emphasis on “entitlement rather than need.” As the state swelled, even “small efforts at categorization and discernment were seen as plots to blame the poor rather than the socioeconomic system that trapped them,” Olasky notes. “‘Freedom’ came to mean governmental support rather than the opportunity to work and move up the employment ladder.”
Our founders would be unsurprised. Reflecting on poverty, Ben Franklin remarked:
I am for doing good to the poor, but…I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.
There is no compassion in keeping the downtrodden impoverished. And nor is it good for the economy. These realizations led Milton Friedman to proudly proclaim: “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” Reasons abound and the possibility exists. We simply need to make the case.