Monday, September 03, 2012

Is the Capital Gains Tax Fair and Just? -- Energion Political Roundable

Will you join in me in a political roundtable discussion sponsored by Energion Publications?  This roundtable broadens a conversation with fellow Energion author Elgin Hushbeck  (a conservative), by including three other bloggers in the conversation. Elgin and I are joined by Arthur Sido (another conservative), Allan Bevere (a self-described Anabaptist), and Joel Watts (like me a liberal/progressive). Except for Arthur Sido, all of us are Energion-affiliated authors.  Since the roundtable crosses the political spectrum, you’ll want to check out how each of us responds to the questions of the week. 

The first question has to do with taxation, and more specifically the capital gains tax.
Should the capital gains tax be changed (raised, lowered, eliminated)? In very general terms, how would this relate to your general view of tax policy?
 Now, I’m not a tax expert, so my responses will be tentative.  But, to start I want to offer a couple of caveats.  1) Like others, I don’t enjoy paying taxes. 2) Taxes are, according to the Constitution, the primary way that government is funded. 3) Whatever form of taxation we use should be fair and not place a heavy burden on the poorest among us.    

The first point is self-evident, so I’ll leave it at that.  I’d rather keep my money, but I also believe that government plays an important role and thus needs to be funded.

With regard to the government’s ability to levy taxes, that right is defined very clearly in the Constitution.  In Article 1, Section 8, it states:
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; . . .
Writing in support of the passage of the Constitution, which had many detractors who believed that it impinged on the rights of states, Alexander Hamilton, the first Secretary of the Treasury, wrote in the Federalist Papers: :
A government ought to contain in itself every power requisite to the full accomplishment of the objects committed to its care, and to the complete execution of the trust for which it is responsible; free from every other control, but a regard to the public good and to the sense of the people [The Federalist Papers, Selected and Introduced by Andrew Hacker, (New York: Washington Square Press, Inc., 1964), p. 58.]   
According to Hamilton, the Federal government needs the power to tax in order to obtain necessary revenue if the nation is to exist, with the people determining how this should work (through our representatives). 

Now, we can debate what the Constitution means by common defense and general welfare, and whether this requires a smaller or larger government, but the issue of taxation is pretty clear.  If we believe that government, whatever its size, is necessary to the public good (and I believe that it’s necessary, though it can be oppressive), and that Constitution is the appropriate governing document for the nation, then the issue of whether the government can issue a tax is really not up for debate. Those who would say that the IRS or government is stealing from us makes little or no sense, unless of course you deny the right of the United States to exist as a nation-state. And if it doesn’t have the right to exist, then we’re pretty much on our own! 

            So then the real question concerns what is fair and just?  What kind of taxes are the least regressive?  The government levies all kinds of taxes and fees, from income to capital gains taxes.  So, with regard to the capital gains tax, from my perspective, seeking to bring a moral perspective to the conversation, I need to ask is it just or is it regressive?

If we look at the perspectives of the two major presidential candidates, Mitt Romney calls for maintaining the current 15% rate on incomes above 200,000 and eliminating them for those making under that amount.  President Obama, on the other hand would like to see them return to a higher 23.8% rate in 2013 (as per the current schedule).     

Being that I’m not a tax expert my question focuses on whether this tax is regressive?  The answer is complicated.  I would say that this form of taxation is less regressive than payroll taxes or sales taxes (some tax reform advocates suggest replacing income and capital gains taxes with a national sales tax).  These taxes hit the lower income people, including the working poor the hardest.  Unlike the income tax, which is graduated in its effects, this hits the poor person in the same way as the wealthy. 

So, what about the Capital Gains tax?   Since it applies largely to the profits made on the sale of stocks, mutual funds, or property, this tax likely will not hit the poorer among us as hard.  It places a greater burden on those most able to pay.  It should be noted that many of the wealthiest among us derive much of their income from the sale of stock and stock options, which is unearned income. This is why Mitt Romney’s effective tax rate is lower than most people who earn their living with a job – and with capital gains taxes, you’re able to balance gains with losses – selling enough stock at a loss to reduce tax liability.       

Can we make this particular tax fairer than it currently is?  Could a compromise be reached so that the tax is eliminated for those making under $200,000, while we raise it for those above a certain rate?   Such an idea might remove the burden from the many seniors who live off their savings, stocks, and property.

From a theological perspective that’s focused on justice, my question is – how do we devise a system that funds the common defense and general welfare of the nation that doesn’t overburden those least able to pay?  In my mind, the capital gains tax fits this understanding.


Liberty Silvagni said...

Well, if it will give significant positive changes to people through the payroll services uk, then it isn't a bad idea after all.

Theodore Van said...

Of course if you would ask someone belonging to a middle class family trying hard to earn their keep will say that the tax is not fair. With the many taxes accorded to products, even grocery items that you buy in retail, it would be understandable if this is the sentiment of most people, however much the tax accountants in western australia explain.

Sophie Tyler Neil said...

People will always have the stigma on that tax is always not fair. Find ways to manage your problems. For example a certain 2290 form can really help small businesses in the trucking industry. From what I heard, it almost neglects the tax involved in purchasing heavy equipment vehicles.