Christian Coalition tax facts

Christian Coalition of Alabama tax facts

-What does the Bible say about taxes?

There is no scriptural mandate that Christians should simply yield to any level of taxation or that we should not protest when tax dollars are used to fund un-godly purposes (example - public funding of abortions, obscene art, etc.).

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-Why does the Christian Coalition of Alabama support low taxes?

We believe that when an individual works for their income, that money belongs to the individual, not the government. From a biblical perspective, we owe our first fruits to God. When taxes are low, this benefits families. How do families and poor children do under Reagan or Bush43? child poverty? abortions? infant mortality? health care?

-What is a "fair" tax system?

According to Webster's dictionary, fair means: "Having or exhibiting a disposition that is free of favoritism or bias; impartial. Or Just to all parties; equitable."

Many today, seem to define fair in a Marxian sense: "From each according to his ability, to each according to his need". Regardless of the tax system, taxing some individuals at higher rates than others is "unfair" in the strictest sense of the word. The debate often centers on perceived inequity. The basic argument goes: "The more you make the more you should pay." The idea of taxing the rich is gratifying to many, but "rich" is a term rarely defined as well. According to the IRS, individuals making more than about $28,000 are included in the top 50% of taxpayers. Taxing the rich actually means taxing those in middle-income brackets as well. A second flaw in this reasoning is that it results in punishing success. The higher one moves in income the higher their tax burden should be, or so the argument goes.

Imposing greater tax burdens on families takes much needed resources from those who can least afford it. Creating a truly fair tax system is the subject of much discussion, with ideas including a national sales tax (consumption tax), reforming the current IRS code, a flat tax on income

"You cannot reduce the deficit by raising taxes. Increasing taxes only results in more spending, leaving the deficit at the highest level conceivably accepted by the public. Political Rule No. 1 is: Government spends what government receives plus as much more as it can get away with." -- Milton Friedman

Some state governments are concerned that the recently enacted economic stimulus package, that allows businesses to reduce their taxes by accelerating some of their depreciation, will cut deeply into state revenues. This concern is misplaced. Rather than hurt state revenues, lower business taxes leads to greater prosperity, which ultimately means stronger state revenues. States that pass legislation that counters the federal stimulus package will only delay their economic recovery and job creation.

"Indeed, Congress's recently enacted economic stimulus legislation will lead to thousands of new jobs all across the country," writes Heritage's Bill Beach in Depreciation Tax Breaks for Business Means Stronger Revenues for State Governments. "Additional job growth means stronger sales and state income tax revenues, more income from property tax levies, and healthier revenues from business profits and franchise taxes."

Historically state business communities become the cash cow of first resort and are seen as a piggy bank that can be tapped to make up for revenue shortfalls.

As Fred Anton, chairman of the Pennsylvania Manufacturers' Association, writes in the most recent Lincoln Institute Journal, "Lost is the message that "business don't pay taxes, people pay taxes."

Business tax increase are funded through work force reduction, higher consumer prices, reduced shareholder dividends, reduced salaries for employees, moratoriums on growth plans or some combination thereof.

Ultimately, business look to locate another area of the nation, or the world, which will enable them to remain competitive and profitable. ....

Our state lost 51,000 manufacturing jobs in 2001 alone -- about on-half the total of the prior decade. We have the second oldest state in the nation. Minimally qualified workers are difficult to find. Our largest out-migration is in the 21-29 years of age group.

Below is a primer on taxes and how states can make the most of their policies.

1) Tax increases are one of the worst steps that can be taken to make up revenue shortfalls. This specifically includes taxes on capital and businesses.

2) Tax cuts and keeping tax rates low lead to greater economic growth and more jobs for a state.

More jobs for a state means a higher income base that can be taxed.

The Truth About Tax Rates and The Politics of Class Warfare

by Daniel J. Mitchell, Ph.D

President George W. Bush, holding firmly to his campaign commitment, has proposed a tax reform package that will strengthen America's economy. The across-the-board reductions in personal income tax rates he is seeking will increase incentives to work, save, and invest; and repealing the death tax will eliminate a pernicious form of double taxation while encouraging entrepreneurs and small-business owners to make decisions based on economic value instead of tax considerations.

These commonsense tax reforms are being criticized, however, by opponents of tax relief who claim that "only the rich" will benefit. Policymakers should ignore this class-warfare rhetoric. Unlike European welfare states crippled by redistributionist policies, the United States has prospered because success is admired rather than envied. But more needs to be done to redesign America's tax code so that barriers to upward mobility that remain are reduced. In other words, cutting taxes is not a policy for the rich, but a strategy that will help everyone else become rich or at least rise as far and as fast as their talent, ability, and willingness to work will take them.

The debate over tax "fairness" is not just an ethical battle between those who support a free-market economy and those who desire a welfare state. It is also an empirical battle based on numbers that often can be verified or disqualified. Not surprisingly, it turns out that many of the claims made by opponents of tax cuts do not withstand close scrutiny. For instance:

Myth: The rich do not pay their fair share of taxes and therefore should not get a significant share of a tax cut.

Reality: According to data from the Internal Revenue Service, ¹ the top 1 percent of income earners pay nearly 35 percent of the income tax burden; the top 10 percent pay 65 percent; and the top 25 percent pay nearly 83 percent. The bottom 50 percent of income earners, on the other hand, pay barely 4 percent of income taxes. By definition, then, it is impossible to cut taxes without the so-called rich receiving a share of the benefits. Suppose consumption or payroll taxes are cut?

Myth: Lower tax rates will mean that the rich pay less.

Reality: This outcome depends on how much tax rates are reduced. History indicates that the revenue-maximizing rate is less than 30 percent. ² In other words, when marginal rates are higher than 30 percent, the rich probably will pay more taxes if rates are lowered. How does this apply to the Clinton years and deficits? The reason? There is less incentive to hide, shelter, or underreport income.

Consider what happened in the years following each of the three times Americans enjoyed significant tax rate reductions.

· The 1920s: The top tax rate fell from 73 percent to 25 percent, yet the rich (in those days, individuals earning $50,000 or more) went from paying 44.2 percent of the tax burden in 1921 to paying more than 78 percent in 1928. ³ what happened after this wonderful move?

· The 1960s: After President John F. Kennedy slashed the top tax rate from 91 percent to 70 percent, those making more than $50,000 annually saw their tax payments rise during the next three years by 57 percent and their share of the tax burden climb from 11.6 percent to 15.1 percent. ⁴

• The 1980s: The top tax rate fell from 70 percent in 1980 to 28 percent in 1988 during the Reagan years. What happened to the "rich"? The top 1 percent went from shouldering 17.6 percent of the income tax burden in 1981 to paying 27.5 percent of the total in 1988. The top 10 percent saw their share of the burden climb from 48 percent in 1981 to 57.2 percent in 1988. ⁵ Why do “Christians” refer to only one tax as if it is the entire “burden”? Why do “Christians” never mention payroll taxes and who pays most?

Myth: Reducing income tax rates will not help the poor. Reality: It is true that the poor will not receive a tax cut when tax rates are reduced, but the reason is that they do not pay income taxes. This does not mean, however, that they will receive no benefits from a tax cut. Indeed, because they are on the lowest rungs of the economic ladder, they will be the biggest beneficiaries of the faster growth that follows a tax cut. Christians have a rule against lying? Millions of children into poverty means “beneficiaries”? hmmmmm

Myth: The payroll tax is the biggest imposition on low-income workers, so reducing income taxes will have little effect on their tax burden. Reality: This actually is true, but it is not an argument against reducing income tax rates. Instead, it is a reason to reform the Social Security system so that lower-income workers can build wealth and enjoy a more comfortable retirement.

Myth: Lower tax rates mean the rich will get richer while the poor get poorer. Reality: President Kennedy was right: A rising tide lifts all boats. Census Bureau data show that earnings for all income classes tend to rise and fall in unison. ⁶ In other words, economic policy either generates positive results, in which case all income classes benefit, or causes stagnation and decline, in which case all groups suffer. As Chart 3 illustrates, the high tax policies of the late 1970s and early 1990s are associated with weak economic performance, while the low tax rates of the 1980s are correlated with rising incomes for all quintiles. Likewise, all income groups enjoyed increases in income after the 1997 capital gains tax cut. The poor did grow after 1997 because of a wide range of Clinton policies – including Earned income tax credit - not because of cap gains cuts.

Myth: Lower tax rates will lead to a repeat of the failed policies of the 1980s.

Reality: In the 1980s, tax revenues climbed by 99.4 percent, much faster than was needed to keep pace with inflation. More important, the economy rebounded from the malaise of the 1970s. Indeed, the prosperity Americans enjoy today is a continuing legacy of the economic renaissance triggered by President Reagan's tax rate reductions. ⁷ You’re going to pay for the Reagan debt for the rest of your life – and 3 million kids into poverty and the bottom 60% losing ground is not my kind of “renaissance”.

Myth: Eliminating capital gains taxes, death taxes, the double taxation of dividends, or the double taxation of savings will merely create loopholes for the rich to exploit.

Reality: Existing provisions of the tax code dealing with capital have the effect of taxing income more than once. More specifically, they impose multiple layers of taxation on savings and investment. Defenders of the status quo can argue that these provisions are desirable. They can claim that the goal of income redistribution necessitates double taxation. They can even say that there is nothing morally wrong or economically destructive about discriminating against taxpayers who save and invest. They cannot argue legitimately, however, that elimination of double taxation
creates loopholes. Double taxation is a bias; adopting policies that tax income only once will institute fairness in the code. The working class pay payroll, income, excise, consumption etc. Elimination estate tax means trust fund kids could pay never.

Myth: Lower taxes on capital--savings and investment--represent "trickle down" economics.

Reality: Every economic theory, including Marxism, agrees that capital formation is the key to faster growth and higher standards of living. Increases in real wages over time are closely correlated with the average amount of capital available per worker. (See Chart 4.) In other words, if workers are paid on the basis of what they produce, it makes sense to adopt tax policies that encourage investment in the tools, equipment, machinery, and technology that help them produce more. How about during capital bubbles?

Myth: The death tax affects only the very rich. Reality: Only 2 percent of deaths may result in an estate tax liability, but many more families are forced to engage in costly and inefficient tax planning in order to avoid the tax. The burden of the tax, however, extends beyond those who either face the tax or take steps to avoid it. The death tax affects every family that lives in a community where a family-owned business must be liquidated to pay the tax. The death tax affects every worker when investments are sent offshore as families seek to protect their assets from this unfair form of double taxation. And the death tax affects everyone who loses income because a significant amount of money is invested for tax-minimization and tax-avoidance purposes instead of wealth-creation purposes.

CONCLUSION When politicians pit one group against another, the only winners are those who believe that more power should be concentrated in the federal government. The economic evidence clearly demonstrates that the U.S. economy will produce significant income gains for all Americans as long as appropriate policies are followed.

Marginal tax rate reductions and death tax repeal are examples of those policies. Yes, taxpayers will benefit, including some upper-income taxpayers, but the real winners will be Americans on the lower rungs of the economic ladder. Daniel J. Mitchell, Ph.D., is McKenna Senior Fellow in Political Economy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.