A healthy economy enables citizens to fulfill their basic obligations—moral as well as financial.  These obligations include providing for themselves and their families and fulfilling responsibilities to the poor and to future generations. 

The federal tax system plays an important role in shaping the American economy.  Many of the moral principles necessary for a free and just economy bear directly on questions of taxation.  To contribute to an ethically and financially healthy American economy, federal tax reform should adhere to several moral principles. 

First, America’s tax system should enable the national government to perform its basic constitutional duties.  These duties include establishing justice and protecting the common good for present and future generations.     

Second, taxation shouldn’t subsidize or encourage harmful behavior.  (See 1 Peter 2:13-14 for a version of this principle.)  At a minimum, the tax system shouldn’t incentivize or enable laziness, free-riding, fraud or failure to pay one’s fair share.  It shouldn’t punish things like hard work, financial success and marriage, and it shouldn’t allow for unsustainable debt. 

Instead, tax policy should require government to live within a balanced budget and encourage businesses to invest, generating economic growth.  And among individuals, the tax system shouldn’t get in the way of beneficial actions like getting a job, saving for college or retirement, and raising kids within marriage.

An initial step to accomplish this would be cutting wasteful spending and removing existing “marriage penalties” in the tax code.  Furthermore, Congress could commit to taxing the money people spend rather than the money they save and ending forms of double taxation on personal savings. 

Granting a few strategic deductions also supports socially beneficial goals like paying college tuition and expenses, giving to charities, and making interest payments on a mortgage.  As part of a comprehensive reform plan, Congress could minimize other deductions and close complicated loopholes to simplify the tax system.  (Saving the American Dream is a comprehensive plan by The Heritage Foundation that suggests how Congress might simplify the tax system and restore economic prosperity.) 

Simplicity in the tax code is itself a moral virtue.  A simple, transparent system enables better financial stewardship on the part of both citizens and those who govern, and less opportunity for fraud and corruption.         

A third principle concerns promoting human dignity by ensuring a robust social safety net.  In a healthy American economy, taxation should adeptly target assistance to those who need it most.  Along with the earned income tax credit, a reformed tax system could provide low-income workers a tax credit to defray private health insurance premiums as one approach to helping. 

The most significant way to target assistance to the truly vulnerable is to reform Medicaid, Medicare, and Social Security to function as a true safety net.  For instance, rather than continuing Medicare as an unsustainable entitlement that blindly gives benefits to all—even billionaires—Congress could reform Medicare into a budgeted insurance program that responds humanely to need.  The underlying goal of reform should be to make these government programs reliable as targeted protections against poverty.  Under current law, that reliability is far from certain.

A fourth principle has to do with responsibility for the well-being of future generations.  Unless America gets its fiscal house in order, we will hand down an unsustainable burden to our children and grandchildren.  This would not only impose a crushing debt—and the harmful credit ratings, interest rates and other implications that go along with it; it would also threaten the current social order and the viability of America’s basic economic and political systems. 

In short, failure to enact serious reforms in America’s tax and spending systems isn’t just financially irresponsible, it’s also morally irresponsible.  But reforms are possible that can encourage personal responsibility and economic growth, ensure a robust social safety net, and secure the blessings of liberty to our posterity. 

Ryan Messmore is the William E. Simon fellow in religion and a free society at The Heritage Foundation.