In case you missed the news, the Catholic Bishops criticized the House Republican’s budget plan for its proposed cuts to programs that serve the poor and vulnerable. It urged Republican House leaders to “put the poor first in budget priorities.” Their implied target was the economic blueprint of Rep. Paul Ryan, the chairman of the House Budget Committee. In a defense of his party’s plan, House Speaker John Boehner suggested that the bishops’ criticism was short sighted. “(I)f we don’t make decisions (to reduce spending), these programs won’t exist, and then they will really have something to worry about,” Boehner said.
In other words, Boehner argued that the Bishops overlooked the importance of reducing the debt, which could pile up so high as to undermine the country’s financial stability. From the standpoint of Catholic social teaching, this argument sounds plausible. As my colleague Thomas Peters has argued, burdening future generations with crippling levels of debt is morally questionable at best.
Yet is the Ryan plan’s method of reducing the debt moral? From the standpoint of the bishops, the Ryan plan “fails basic moral criteria” because of its cuts to programs serving the poor and disabled. But they might have opened a related line of attack: The Ryan plan does not ask for shared sacrifice to reduce the debt.
The poor are asked to sacrifice; under the Ryan plan, housing programs and food stamps would be cut, while the child-tax credit for children of working-poor immigrant families would be eliminated. Middle-income workers are asked to sacrifice; under the Ryan plan, the rate of growth of Medicare benefits would be cut. Yet higher-income workers and the wealthy are not really asked to sacrifice. Under the Ryan plan, their federal income taxes would be reduced, as the top marginal rate would fall from 36 to 25 percent.
What is the economic rationale behind rewarding the upper classes? The Ryan plan’s implicit answer is that the upper classes generate much if not all of the country’s economic revenue:
Lower economic output mutes the revenue effect of top-rate tax increases. Top rates have risen and fallen dramatically in the past, with little overall effect on tax revenue as a share of the economy. The United States has set the top individual rate as high as 90 percent and as low as 28 percent, but income tax revenue has remained fairly steady despite these sharp rate swings. The biggest driver of revenue to the federal government isn’t higher rates – it’s economic growth. Growth is the key to fiscal sustainability – and low rates are the key to growth.
But the link between marginal tax rates and economic growth is much weaker than the Ryan plan states. While the summary of Ryan plan points to the lower tax rates and economic boom of the 1980s to justify its conclusion, it neglects to mention exculpatory evidence. The U.S. economy boomed from 1947 to 1973 when the top marginal tax rate was 91 and then 70 percent. And the U.S. economy did not boom from 2002 to 2008 when the top marginal tax rate had been reduced to 35 percent; the annual percentage increase in the gross domestic product was 1.1, 1.8, 2.5, 3.6, 3.1, 2.7, 1.9, and 0.0. In other words, low rates are not the key to growth, although they might be helpful.
What should Catholic conservatives think of the Ryan plan? Thomas and my colleague Stephen White have defended the plan’s proposal to reduce entitlement spending. Yet I think Catholic conservatives have been uncritical of its tax cut proposals, which should be thought of as the progeny of the supply-side and libertarian rather than Sam’s-Club wing of the GOP. This is not to say that taxes on the wealthy should be increased. But it seems to me that a morally serious plan to reduce the debt would ask all Americans to sacrifice and not just some.