Does Paul Ryan’s Boring Tax Plan Neglect Catholic Social Teaching?
Washington, DC, is a big fat bubble. Professional types tend to dress the same and read the same news and eat in the same restaurants. Le Diplomate and Centrolina; Ann Taylor and Shinola. The celebrity sightings are different (my wife and I recently brunched near EPA Administrator Scott Pruitt). But functionally, the DC crowd is a homogeneous lot. This is because the city is about ‘more’ than politics — I quickly learned just how many white shoe law firms, think tanks, journalists and pundits, consulting firms, PR firms, and nonprofits cram into this city’s 68 square miles. Lots of similar people glom on to the center of power. And this matters because perception and decisions tend to be shaped by gamesmanship and city-wide office politics vs the rhetoric of campaigns and idealism and capital-H Hope.
And The Big Story lately has been Paul Ryan vs Donald Trump: Tax Plan Edition (would I be happier if the fight were over something like the appropriateness of lying repeatedly in the public square? Yes I would). Paul Ryan’s been pushing a plan called the ‘Border-Adjusted Tax’ or ‘Border Adjustment Tax’, depending on which journalist you read. Ryan is for it; Trump is against. And Ryan’s digging in.
So what is this thing? Well, it’s boring. It also involves billions of dollars in tax revenue. About $1 Trillion every decade, if you believe The Atlantic. It’s interesting, the way serious money is often seriously tedious. It’s almost as if that were intentional. Anyway, how does BAT bring in those billions and trillions? By taxing imports.
The problem with taxing imports is that it’ll likely raise costs for consumers. Wal-Mart’s Chinese tube socks and televisions will cost the retailer more; given public companies’ relentless focus on profitable quarters, those costs will be passed along to consumers fairly quickly. Exporters, who are exempted from the tax, love it (we do still have exporters in this country — the people who make things like almonds and airplanes). They’re running their own relentless SEM and social media campaigns (Sign the Petition!) to celebrate the effort. So it’s easy to find faceless corporate villains on both sides. And Paul Ryan has his Senate GOP wonk doppelganger, Tom Cotton, fighting him on the plan. I’m sure the fact that Cotton represents Arkansas, Wal-Mart’s home state, has nothing to do with this.
It’s also important to note why Speaker Ryan wants to bring in so much more tax revenue: it will allow Congress to slash corporate tax rates while replacing revenues from corporate sources. It also checks off the technocrat objective of ‘modernizing the tax code’ (though not, Lord knows, simplifying it). It’s a financial maneuver that allows Republicans to pursue their political objectives (objectives, they argue, that will strengthen the economy and result in all-around prosperity).
And this brings us to Catholic Social Teaching, the set of principles Ryan espoused back when I believed in him. The primary question is BAT’s impact on individuals and their families, as families are the first and fundamental communities within society, and individuals are the ultimate end of the economic system: “I would like to remind everyone, especially governments engaged in boosting the world’s economic and social assets, that the primary capital to be safeguarded and valued is man, the human person in his or her integrity: “Man is the source, the focus and the aim of all economic and social life.” (Caritas in Veritate #25). Since individuals are the ‘source, focus, and aim’ of economic life, we need to orient economic life towards and under them.
We also need to take the common good into account. Now the common good isn’t collectivism or a general sense of agreement or even doing ‘the most good for the most people’; in the words of Pope St John Paul II, “…rather it involves an assessment and integration of those interests on the basis of a balanced hierarchy of values; ultimately, it demands a correct understanding of the dignity and the rights of the person” (Centesimus Annus 47). So this brings us back to the individual person and the person’s family. “Labor…provides for the sustenance, stability and fruitfulness of one’s family” (Amoris Laetitia 24). The common good is about creating an environment conducive to that individual’s success, or, to use a trendy buzzphrase, to their “human flourishing” in a way that lets them order their lives and meet their needs.
Finally, what of those two balancing forces in Catholic Social Teaching, Solidarity and Subsidiarity? Notwithstanding the sneers about subsidiarity in John Podesta’s hacked emails, the idea’s pretty dynamic. It is a “fundamental principle of social philosophy, fixed and unchangeable, that one should not withdraw from individuals and commit to the community what they can accomplish by their own enterprise and industry” (Pope Pius XI, Quadragesimo anno, 79). Subsidiarity is often taken as a catch-all for localized government and decisionmaking: it can cover this, but really its root is in, again, the individual person and their innate dignity and worth.
So people aren’t commodities. Economic systems and their attendant tax structures should be oriented in support of them. Does BAT do this? Well, it will have fairly short term negative impact on individuals in exchange for a less-certain long term benefit. What sorts of things do we import in massive amounts?
Seriously, apparel? 93%?! Clothing and computers will be extremely hard-hit, but all industries would suffer (American-grown coffee and bananas aren’t really a thing). In light of Catholic Social Teaching’s prioritization of individuals and families, there are two core groups of people to consider when balancing the policy change’s impact: Consumers and Employees.
Think through the impact on people and their families as prices rise for imported goods. Now, both sides say the other ‘will hurt families’ — the ‘American Made Coalition’ of supportive exporters claims that following BAT passage, “the combination of lower taxes and higher wages means the typical American family will have $4,600 more to spend each year,” while the ‘Americans For Affordable Products’ team claims the bill will ‘cost American families over $1,700 each year for basic necessities.’ Neither side is big on citing sources; I’m sure they just commissioned friendly economists to write white papers until they found one with the data points they liked, Coca-Cola style. But a BAT driving up consumer costs because major retailers live and die by short term margins makes a lot more sense to me than a nebulous lower tax/higher wage package somehow putting $4,600 in families’ pockets.
And the impact on consumers is just one aspect of BAT’s impact to consider: think also of impact on employees. The retail sector impacts 42 Million Americans through direct or indirect jobs (see here). If goods cost retailers more, they’ll raise prices and look for other ways to cut costs to show better margins; a tried and true approach to get there is cutting jobs. Now, BAT supporters claim that the tax’s negative impact will be offset by lower corporate tax rates, but how many giant corporations are paying the current corporate tax rate?
NOT MANY. Not many at all.
Boeing, Verizon, GE, and 23 other Fortune 500’s paid absolutely nothing in Federal taxes during the five year period between 2008–2012. A review of the 288 Fortune 500s that had been consistently profitable in each year over the same period found that they paid an effective federal tax rate of 19.4% — far lower than the current 35% corporate tax rate. The House wants to cut the top corporate tax rate to 20%, which is still above what major corporations are actually paying, on average, right now.
So the positive impact of lower corporate tax rates isn’t the panacea it’s being billed as.
All this makes me a BAT skeptic. I see how it hurts individuals and families, not how it helps them. But ultimately, I have neither a beard nor an economics degree — I recommend exploring notables like Olson and Ponnuru and Feldstein and Douthat when he writes about this (just to celebrate his wild and gutsy call to remove the President from office under the 25th Amendment). Perhaps the line can be drawn from a BAT scheme that lowers corporate tax rates to clear benefits for individuals and families. But that line’s looking rather dotted and circuitous at the moment. In the meantime, it’s important to remember who the system’s supposed to serve.