Is the Capital Gains Tax Fair and Just? -- Energion Political Roundable
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
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 Defenceand general Welfare of the United
States; but all Duties, Imposts and Excises shall be uniform throughout the
United States; . . .
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: :
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.]
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
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