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What if lowering a tax could actually increase government revenue while freeing up resources for everyone else? It sounds counterintuitive. But economics shows it happens more often than you might think. Today on Stewardology, we are exploring the science of taxes and how thoughtful policy can align with wise stewardship.

 

A Foundational Principle

Just like tariffs, taxes come with trade offs. Any time a dollar is taken out of the hands of individuals and redirected through government, it tends to be used less efficiently than if it had remained in the broader economy. That does not mean all taxes are bad.

A Biblical Framework

Scripture makes it clear that taxes have a legitimate role: “Because of this you also pay taxes, for the authorities are ministers of God. Pay to all what is owed to them.” Romans 13:6-7

As believers, we are called to pay what we owe. But Scripture affirms the role of taxes. It does not endorse every application of tax policy.

 

Tax Complexity and Incentives

The issue is not simply that taxes exist. It is that:

  • The tax code has become overly complex
  • Incentives are often misaligned
  • Capital is not always used efficiently

A Real World Example: Capital Gains

Imagine you own a property that has appreciated by $750,000.

You might want to sell, but the capital gains tax discourages you.

Sell now and pay 15 percent or more in taxes.
Hold longer and defer the tax.
Pass it on and receive a step up in basis, potentially eliminating the tax entirely.

So what happens?

People hold onto assets longer than they otherwise would.
Properties sit underutilized.
Supply tightens, especially in housing markets.

 

The Counterintuitive Idea

Lowering certain taxes can actually lead to more economic activity and sometimes even more tax revenue.

How That Might Look

Today, we have short term capital gains taxed at higher ordinary income rates, and long term capital gains taxed at lower rates after one year.

But what if there were a third category? A mid term or enhanced capital gains rate, say 5 percent for assets held five to ten years.

What could happen?

  • More people would be willing to sell
  • More transactions would occur
  • Capital would be redeployed more efficiently
  • The tax base would expand

In other words, a lower rate applied to more activity could generate more total revenue.

 

The Bigger Principle: Behavior Changes

Every tax policy has ripple effects. Taxes do not just collect revenue. They shape behavior. Raise taxes and people delay, avoid, or restructure. Lower taxes and people transact, invest, and take risks. We all respond to incentives. Every one of us is an economic actor. The capital gains example is just one illustration of a broader truth: Taxes have first, second, and third order effects.

 

Who Really Pays Corporate Taxes?

It is easy to assume corporations pay corporate taxes. But in reality, those costs are often passed along:

  • To consumers through higher prices
  • To employees through lower wages
  • To shareholders through lower returns

A tax is just another expense line.

Remove or reduce that expense, and you create room for:

  • More competition
  • Lower prices
  • Greater innovation

As the saying goes, “your margin is my opportunity.”

 

Can We Eliminate Income Tax?

It is a fair question, but a difficult one. Government services have to be funded somehow. Programs like Social Security and Medicare are largely supported through income based taxes. To eliminate income tax entirely, you would likely need:

  • A dramatically smaller government
  • Fewer services and programs

That is a trade off many people are not willing to make.

 

Alternative Approaches

One alternative is a value added tax, commonly used in Europe. A value added tax applies a small tax at each stage of production and consumption.

In that system:

  • Revenue comes from spending rather than income
  • Consumers ultimately fund government operations

That said, many countries still pair a value added tax with income taxes, so it is rarely a full replacement.

 

The Layered Reality of Taxes

Most people do not just pay one tax. They pay many:

  • Federal income tax
  • State and local taxes
  • Sales tax
  • Gas tax
  • Property tax
  • School tax
  • And more

Your dollar is taxed again and again and again, which raises an important question: At what point does the system become too heavy?

 

The Path Forward

If we want meaningful tax reform, it likely involves:

  • Simplifying the tax code
  • Reducing inefficiencies
  • Reevaluating the size and scope of government

Ultimately, you cannot sustainably lower taxes without also addressing spending.

 

Learning More: Thomas Sowell

If you want to go deeper on these ideas, the work of Thomas Sowell is a great place to start. Some helpful books include:

  • Basic Economics
  • Applied Economics
  • Discrimination and Disparities

His work consistently emphasizes incentives, trade offs, and the unintended consequences of policy decisions.

 

Closing Application

Scripture reminds us where wealth ultimately comes from:

“You shall remember the Lord your God, for it is he who gives you power to get wealth.” Deuteronomy 8:18

“Set your hopes on God, who richly provides us with everything to enjoy.” 1 Timothy 6:17

Yes, tax policy matters. Yes, economic systems matter. But they are not ultimate. Everything we have belongs to God. He gives us the ability to produce wealth and calls us to steward it faithfully, wisely, and generously for His purposes. So whether taxes rise or fall, our calling remains the same: To live with open hands, diligent hearts, and eyes fixed on the true riches that never fade.

 

 

Next Steps

 

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