June 17, 2011
by Jordan J. Ballor
A return to a first-principles discussion of taxation in America requires a return to the fundamental purposes of taxation. Notwithstanding the current size of the federal tax code, the fundamental purpose of government taxation is not to encourage or discourage particular behaviors. The point of taxation is to raise funds to enable the government to fulfill its moral, political, and social responsibilities. It is true, as economist Arthur Laffer has made famous, that “when you tax something you get less of it, and when you reward something you get more of it.” But this reality, which takes into account how people respond to incentives, is secondary to the basic function of taxation.
A corollary to the fundamental purpose of taxation (to raise money for government to function) is that any secondary purpose or consequence should not be confused for the primary purpose. To do so would be to hijack taxation and turn it into something else. There is good evidence, however, that this is precisely what has happened in the United States federal tax system. In his Capital Commentary piece from 2005, former CPJ president Jim Skillen writes that “dozens of tax deductions now on the books complicate the tax code in ways that can pit one purpose against another and keep government from collecting the taxes it needs.” When governments run huge deficits in part because of the complexity of its tax system and the ability of people and institutions to engage in large-scale (and legal) tax avoidance, there is something deeply wrong with the system.
Indeed, the Internal Revenue Service Code, contained in Title 26 of the US Code, is currently over 3.8 million words long, and when laid out in a basic word processor amounts to over 9,400 pages. If former House Speaker Nancy Pelosi once famously said of the Patient Protection and Affordable Care Act, “we have to pass the bill so that you can find out what is in it,” then in order to enforce and execute the details of this massive IRS code the federal government employs just under 100,000 workers, at a cost of over $12 billion in 2010.
The complexity of the tax code has arisen largely due to this basic confusion about the purpose of taxation. Rather than viewing the taxation process as the means for government to get the money it needs to do what it needs to do, the tax code has been turned into a primary means for social engineering. This is true for the pet social and political causes of politicians from a variety of political persuasions. In response to the first “Laffer Curve Lesson” noted above, politicians have increasingly used the code to punish behaviors deemed socially undesirable (especially in the case of so-called “sin” taxes) and to reward activities that are judged to be socially beneficial (via tax breaks).
In any of these judgments the government essentially picks “winners and losers,” literally codifying preferred ways of life for its citizens. This is dangerous for a number of reasons, not least of which that the tax code quickly becomes a tool for a variety of special interests through their influence on the legislative process to tilt the economic and social playing field in a particular way.
As C. S. Lewis once wrote, “Of all tyrannies a tyranny sincerely exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.” Our nation needs to drastically reduce the practice of social engineering through the back door of the US tax code. This has effectively become a form of tyranny, one which couches itself in purporting to promote the common good. What such manipulation does in reality is undermine the basic purpose of taxation thereby restricting economic and social flourishing in America.
—Jordan J. Ballor is a research fellow at the Acton Institute for the Study of Religion & Liberty in Grand Rapids, Michigan.