Editor’s Note: This article was first published by the TCS Daily and has been reprinted with the author’s permission.
“When Jesus tells us he will regard the way we treat the hungry, the homeless, the stranger, the sick, and the prisoner as if we were treating him that way, it likely means he wouldn’t think capital gains tax cuts for the wealthy and food stamp cuts for the poor represent the best domestic policy.”
— Jim Wallis, Sojourners Magazine
When I read Jim Wallis’s attempt to use the gospels to set the capital gains tax rate, I flashed back to a speech that I heard Ted Kennedy give in the 1980s. Attempting to stifle the rising tide of conservative evangelical political engagement, Senator Kennedy said “I suggest that the almighty has not taken a position on the IRA deduction.” Great line, I thought.
How times have changed. Keeping the Bible out of public policy was the left’s line in the 1980s. Now they’ve switched to trying to get a 25% marginal tax rate on long-term capital gains out of St. Luke.
It’s not so far fetched as might seem at first. Jesus, in fact, did speak about capital gains. He told a story about three stewards. One achieved high capital gains on the owner’s investments. The other also did well. The third one, failed to achieve any capital appreciation at all and was fired.
Jesus also told a story about capital losses. A steward, about to be fired, bargains to sell notes receivable back to the lenders at reduced price. In other words he imposes capital losses on his about-to-be-former employer. It’s a pretty confusing story.
Unfortunately neither the parable of the capital gains nor the parable of the capital losses makes any mention of taxes. Or maybe it’s not so unfortunate after all. Maybe the lack of detail spares us from the temptation to try to exegete tax rates out of the holy scriptures.
It’s not that the Lordship of Christ doesn’t extend over economics, or that God is indifferent to financial matters. If I believed that, I couldn’t work in those fields. It’s that no detailed legal and tax code could ever be sufficient for all times and all places.
A couple of decades ago, a group of Calvinistic thinkers launched a movement called ‘theonomy’. It attempted to impose the details of the Deuteronomic law code on modern America. Theonomists did it from the hard right; it seems as though some on the left are trying to do it from the other side. They agree on the premises that we can skip the hard thinking about economics and finance and simply base our policies on Biblical revelation at one moment in time. They disagree only on the era. Theonomists wanted the to impose the law code that was given to a Neolithic tribe in the second millennium BC: Evangelicals on the left look to the communal practices of a small group of dissidents who waited in First Century Palestine for the imminent fall of the dictator, as our economic guide.
The problem with both approaches is that in the end, they provide elaborate theological justifications for their followers to stop reasoning about economics. If any passage of the bible tells us the specifics of God’s economic policies, then all the questions are already settled. The theological questions really are settled. The answer is: love your neighbor as yourself. There is no possible debate for Christians over the question of whether we should pursue economic policies which are beneficial to our neighbors, especially the poor. The unanswered questions are prudential. God offers us no waiver from the hard work of immersing ourselves in the data of economics and finance.
Here’s what the data show: cuts in capital gains tax rates tend to coincide with DECREASES in the poverty rate for the time periods for which data are available. For instance, Ronald Reagan cut the capital gains tax rate as part of his tax reform act of 1986.
Bill Clinton cut the capital gains tax rates on long-term gains in 1997 and a strong decrease in poverty rates resulted. George Bush cut the capital gains and dividends taxes in 2003 and the resulting economic surge caused a decrease in the 2004/2005 poverty rate. Although comparable data are not available for the first of the supply-side tax cuts which were proposed by John Kennedy, his rationale for those cuts was the alleviation of poverty, claiming that in economic affairs ‘a rising tide lifts all boats.’
Critics on the left charge that lowering the tax rate on capital helps the rich, not the poor. This reveals the fundamental presupposition error of their thinking—that the rich and poor have an inherent economic conflict of interest. They do not. The tendency in modern dynamic economies is for the rich and poor both to get richer, but at different rates. Growth-oriented policies are beneficial to both. They have an inherent harmony of interests. This is demonstrated by current economic data. Lowering the cost of taxes on capital lowers the risk of capital investment. The tax cuts of 2003 triggered a very strong surge in capital spending. This means more buildings, more computers, and more machines, which means more people to occupy, sit at and operate them. That’s why the household survey shows a gain of 8 million jobs in the past 3 years.
The tax code doesn’t determine whether wealthy people invest their wealth or not. The tax code simply helps determine where they will invest it. They can invest their gains either on information technology and heavy equipment, or they can invest them in a small army of tax accountants, trust attorneys and other advisers to whom they turn for help in sheltering their gains from the IRS. I should know, I used that small army. In the late 1980s I was a tax accountant for the world’s largest accounting firm. I had some very wealthy clients, but not one of them gave in and sold all that they had and gave it to the poor. Instead they gave big chunks of it to us in exchange for us finding ways to structure their affairs so as to avoid giving even bigger chunks to the IRS. The higher the capital gains tax rate, the more they needed us.
The simple economic fact in the end seems to be a moral fact as well. There is an ‘envy-tether’ which, when tightened in an attempt to punish the wealthy, ends up hurting the poor. I live in the Mon Valley area of Pennsylvania, very near ground zero of American deindustrialization, just outside of the former Mill town known as McKeesport. We’re so close that we actually have a McKeesport mailing address. In fact, a couple of years ago, our accountant got a little confused and prepared a McKeesport tax return for our business earnings, thinking that we actually lived in the same taxing district. The bill was incredibly high, so high in fact that we would have moved our business to avoid it. They actually have something called a ‘business privilege tax’ which you have to pay even if you don’t make any profit at all.
In the summer time when we walk around the neighborhoods or are driving home from Church, and the windows are open, we can actually smell the stench of urine and liquor on the main drag. A thriving business district now sports liquor stores, second hand shops and places to sell blood plasma. How, I wondered, can things have gotten and stayed so bad? Then I remembered that tax bill, and it all made sense. The envy tether.
Jim Wallis came here to McKeesport last year as part of something with a name like March for Justice. He mentioned the poverty. He did not, to my memory, mention the business privilege tax.