Papal Economics 101: President of the Vatican Bank Condemns Raising Taxes (and Explains Why) in L’ORBy
We’re going to be hearing a lot about raising taxes this year and next, and especially about the need to raise taxes on “the rich” in order to force them to pay their “fair share.”
That’s because the American public has woken up to the fact that our government has been outspending itself at a furious pace — and now the debt has come due.
There are two broad solutions to America’s outstanding debt (which already exceeds 14,000,000,000,000 dollars) and America’s annual budget deficits: reduce the size of government or increase how much tax revenue it takes in. Broadly speaking, Republicans favor the former, and Democrats the latter.
Which solution (or combination of solutions) does Catholic social teaching favor? You’ll be hearing plenty about that, too. But the President of the Vatican Bank Ettore Gotti Tedeschi has already pointed us in the right direction, in his brilliant (and mercifully short) editorial for the L’Osseratore Romano (L’OR), the Vatican’s “official” newspaper.
I put “official” in quotation marks because I’ve been careful to point out in the past that the opinions expressed in L’OR do not represent the official position of the Church. Instead, we are to evaluate them by their merits. Nonetheless, I’m very pleased to see that they published this excellent editorial, because this will force liberal Catholics to decide if they actually do feel free to dissent from L’OR when it contradicts their political views. They certainly have spent a good deal of time trying to claim L’OR’s mantle when they perceived it as favoring their political persuasions.
But let’s get to the good stuff: Europe is facing a(n even) worse budget crisis than we are. Europe’s bloated socialist governments have amassed (even) more debt than us, and their over-regulated businesses have (even) less economic output than ours. This means that what’s in store for our near future is already happening there.
I’m going to quote Tedeshchi’s argument in reverse, because after reading his essay carefully I realized he actually writes in reverse – therefore his argument makes more sense “backwards”:
Further forms of taxation would not be synonymous with solidarity but only with greater public spending and, perhaps, a higher debt and more widespread poverty. High taxes penalize saving, generate distrust in the ability to stimulate recovery, hit families and prevent the formation of new ones, as well as creating uncertainty and precariousness in employment. In short, they lay the foundations for another phase of unsustainable development.
First point: increasing taxation by transferring wealth from people, families and businesses to government bureaucracy violates both subsidiarity and solidarity. Economies are built on people who can know with certainty that they will harvest the fruit of their labors — excessive taxation kills this dynamic which focuses creativity and rewards industry. If we want to “stimulate” the economy how can we do so successfully when we constantly deplete it through taxation?
During a prolonged crisis, inheritance taxes, new forms of taxation or similar alternatives reduce or wipe out resources for investments, discouraging the trust of investors, penalizing the cost of the public debt and the possibilities of its renewal at its expiration. In this context, imposing taxes on property and on income is equivalent to a suicidal anti-subsidiarity of the state to the citizen. Those who legally possess assets, on which they have paid the proper taxes, have contributed to creating wealth and, thanks precisely to these assets, continue to produce them with investments and consumption.
Second point: money held in private is not “static” — it is a dynamic force that when spent and invested truly stimulates more production and the creation of new wealth. It is precisely having wealth and “excess” that allows people and businesses to give from that wealth to invest in creating more of it. It is therefore anti-subsidiarity to take what is held by local entities (e.g. individuals, families, businesses) and give it to a centralized authority (the federal government, in this case). This principle does not rule out all taxation, of course, because there are some legitimate roles served by centralized government (see: The Constitution) — but it does rule out over-taxation, especially when taxes go to federal programs and mandates that can frankly be administered better by local, immediate entities (such as private charities, hospitals, etc).
Without a true strategy for growth – which moreover is in contradiction to the tax levy itself – taxation in all its forms only permits further growth in public spending, inevitable if economic interventions are to be permitted in the absence of development. At a time like this, growth is obtained solely by the appropriate use of the available resources in order to benefit businesses that create wealth and sustainable employment, pay their taxes and thereby make absorption of the debt possible.
Third point: growth is the key concept. Without economic growth there is no government, because there is no economy to sustain its expenses. Governments don’t make money: businesses and people do, the market does. And taxation, raising taxes, and acquiring private property all serve to inhibit growth. Some taxation can be sustained, over-taxation ultimately cannot. And if America and Europe are ever going to climb their way out of the fiscal hole they find themselves in, it will be growth that drags us out, not taxes.
In this, the aim of both Democrats and Republicans should be shared: if Democrats want government to provide social services and the “safety net”, they must allow Republicans to pass (and in cases like Obamacare, repeal) laws that are preventing growth from continuing and increasing, because it is actually economic growth that is keeping the whole engine of government spending running in the first place.
Think about these three core concepts (1. over-taxation violates subsidiarity and solidarity 2. private wealth in fact serves the common good 3. economic growth is the key to recovery) as politicians and parties argue for your vote next November. Ask yourself if it makes sense to tax more the very engine that is fueling government spending, if it wise for government to spend money that private citizens have saved, and if taking money out of the economy can do anything except make it smaller and more anemic.
And while you are at it, read Mr. Tedeschi’s article again. I know I will.
UPDATE — Readers have asked what Mr. Tedeshchi was responding to. I believe he was commenting on a recent Italian proposal to raise taxes on high earners (sound familiar?). Of course, the principles he outlines apply not just to Italy or the European Union. Italy has dropped the proposal, according to the AFP:
Italy dropped Monday a proposal for a levy on high earners approved by the cabinet earlier this month as part of an austerity package aimed at calming the markets by balancing the budget before 2013.
… The temporary tax would have been five percent on revenues of more than 90,000 euros a year and 10 percent on revenues of more than 150,000 euros.
… Italy has one of the highest debt levels in the world and a low growth rate.