Papal Economics 101: President of the Vatican Bank Condemns Raising Taxes (and Explains Why) in L’OR

Vatican Bank President Ettore Gotti Tedeschi

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.



  • Matthew

    I consider my economic philosophy to be progressive and I adhere staunchly to the Church’s social teaching, does not automatically make me a dissenting ‘liberal’ Catholic?! Perhaps it’s because I’m not an American (I’m from Malaysia), but I fail to understand this American perception that a good and traditional Catholic must support neo-conservative economic policies. I’ve always considered myself a traditional Catholic but I feel victimized and ostracized by this connotation that the Church is obliged to take a reactionary stance even in matter that do not concern her, for example economics.

  • Jennifer

    Just wondering: if God can get it done on 10%, why does any government think it has the right to more?

    But what about if everyone was taxed a flat 10%? Is it equitable? Is it just? Would it work? Pros and cons? Thoughts?

  • Jennifer

    Just wondering: If God can get His work done on 10%, why does any government need more?

    I’d be interested to hear the pros and cons of a 10% flat tax for every citizen. Is it equitable? It is just? Would it work?

  • Paul Cameron

    Ronald Reagan raised taxes 11 times as President. As governor of California he also legalized abortion. This is something few conservatives want to talk about. Ronald Reagan also supported Gun Control. Nixon created the environmental protection agency. The military is a government run institution, so why do Catholic Republicans approve of the defense budget? Is that what the Catholic Church supports too? Even the Federal Reserve was a Republican idea. Why bring this up? Where was the Catholic church when all this was going on? All these things the Republicans once were for, but now are against. I just find it rather comical now, how you can take something clearly written about Europe and you are trying to usurp into using it against liberal Catholic Americans. It’s quite a thing, watching you twist an article into your own self ascribed political agenda. It seems to me Thomas you are shameless.

    • Thomas Peters

      Paul – please stay on topic. What is currently under discussion is how to fix our crushing debt and deficit NOW. I’m not interested in scoring historical points. I’m interested in the present. Thank you.

    • MikeM

      The Democrats were pro-slavery, then they were pro-segregation, and then they voted against the Civil Rights Act.

      Is that relevant? No. Neither is what some Republicans did decades ago.

      • Thomas Peters

        thanks, Mike. For helping us stay on-topic.

        • davide

          @Tom Peters you have brother’s don’t you? Or a terrific relationship with your father? Maybe both? Why I ask? Because of the salty almost taunting reply to Michael. And only a man secure in self-confidence, and moxie (masculinity without being macho) could get by with that. Other words you got MOJO. I figured out all that in 8 words? Ya! I’m that good!!! Okay see you. I know totally off subject 😉 get that with me…

        • Paul Cameron

          What country practices Solidarity that you can name? Can you answer that? Is there a country in this world that does this?

          • Thomas Peters

            while no country may be perfect, some are clearly better than others (USA vs. Libya, for instance). What’s your point?

          • Paul Cameron

            The US does a fair job of it, taking care of those that are marginalized. Our country does a pretty good job of it, and it’s done through taxes. Your philosophy is that the government should be the last resort to adhere to the problems. Yet, when they passed Social Security there were more people living at the poverty level in this country. So the reason government got involved was that it was a ‘last’ resort at the time it was enacted. So it seems to fit in perfectly with the teachings of solidarity. Now can you answer me this. What country out there practices subsidarity?


  • Davide

    @ Tom, I am totally against raising most taxes and especially income taxes on anyone including “the rich”. Everyone knows more taxes, leads to more spending which leads to more debt. I would be all for a 1 percent federal sales tax on all non food items if it was solely used to reduce the debt. Nothing else. I think I am pretty much in agreement with you. It is queerly kooky though when you think about it, the employee’s at the Vatican pay no income payroll tax and for the first time in years they are operating in the black. BTW what u said about my home country is absolutely and positively true. But you left out one important factor regarding Italy and this is key reason for its economic mess, its not so much the taxes as it is mothers stop having babies. Okay I lied, it is both but I think the baby issue is dire. Italian men need to eat less pizza, drink less wine, less car talk, watch less football and make much more love to their beautiful wives and wives need to flush the birth control bills, trash the condoms and start having babies! Many babies!!!! Then pay the taxes! BTW if American’s knew how much Europeans paid in taxes they be crapping in their jeans, Dockers, overalls, capri’s and pant suits.. Do American’s really want to become like Europe? I mean why not just give me your money-at least I use it wisely. Silly and absurd Americans (just the liberals).



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