Grudem on Economics: Govt and the Poor

Whenever someone says “The Rich should pay their fair share,” probe them on it.  What does “fair” mean? We’ll get to that. Does the Bible support this? It does not.  It says “to impose a fine on a righteous man is not good, nor to strike the noble for their uprightness” (Prov. 17.26).  It says nothing about whether he is poor or rich.

The Walton family is worth at least $70 billion.  The Waltons therefore have added $70 billion worth of value to the world in terms of jobs, goods, services.  

To be sure, there are issues of access to economic mobility that Grudem doesn’t really address, but even then the standard of living has risen for the poor in America.

Taxes

Even though a wise govt will have lower taxes, the Bible supports the idea of taxes.  If a govt keeps taxes low, then it will gain more wealth overall, per the Laffer Curve.

1. When taxes are lowered, this encourages businesses to invest and grow.
2. This provides more jobs and lower prices, both of which are beneficial for the economy.
3. As the economy grows, businesses and individuals earn higher incomes.
4. These higher incomes are taxed at a lower rate, but more tax money still flows into the govt.

Grudem explains: “if in 2009 Mr Smith earned $80,000 and paid 25% in taxes, he would pay $20,000 in taxes.  But if the tax rate drops to 20%, it provides an incentive for businesses to invest and grow, and people also to work harder, knowing they can keep more of their money.  Then perhaps in 2010 Mr Smith’s income will be $110,000. At the new low tax rate of 20%, he ends up paying $22,000 in taxes. The government has lowered the tax rate, helped the economy, and collected more money in taxes” (286)!

Anyone who favors a higher tax rate on the wealthy has to answer the following questions: do you want to increase human freedom and raise more money for government needs and also help the economy, or do you just want to “stick it to the rich”?

Capital Gains Tax

It is a tax paid on the increase in the value of the asset that is held over a period of time.

Income Tax Rates

Is such a system really fair?  No, even on a flat tax rate, the rich will pay far more in taxes than the poor. If my net worth is $30,000, then I pay $3,000 in income tax.  If my worth is $300,000, then I pay $30,000 in income tax, ten times more.