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Credit Cards and Virtue Ethics

photograph of hand holding credit card over swipe machine

The majority of American adults use credit cards. The majority of this majority are also in credit card debt. The high interest rates and fees associated with this debt have led many in the personal finance industry to warn of the risks of putting charges on the plastic. However, Americans seem reluctant to heed the warnings, with national credit card debt recently surpassing the one trillion dollar mark for the first time in history. Given current economic realities, experts claim there is little reason to think this trend toward ever-increasing consumer debt will change anytime soon.

Given how many Americans find themselves stuck with credit card debt, it is worth considering whether or not the benefits of credit outweigh the downsides for the average consumer. Put differently: are credit cards actually good for people?

There are a multitude of ways to approach answering this question, but I propose we consider credit card usage through a virtue ethicist’s lens. Virtue ethics is one of the most historically influential approaches to ethical theorizing, and it focuses on the importance of cultivating the right habits in one’s daily life. Virtue ethicists stress that moral development is something that occurs across a lifetime, and that the morally ideal agent is one who continually steeps themselves in the right kinds of practices and cultivates the right kinds of habits.

A key feature of the virtue ethics framework is that it typically avoids positing universal rules for determining moral behavior. Instead, the approach encourages moral reflection on the part of the moral agent; it is up to the individual and their broader community to discern which actions encourage virtue and which encourage vice. While it is safe to assume that certain habits – such as violent, greedy, or dishonest ones – are indicative of vice regardless of cultural context or time period, there are a number of behaviors which fall into more of a gray area. Media consumption tendencies or wine-drinking predilections, for instance, need not signal virtue or vice. Depending on one’s motives and personal situation, such habits can either aid one’s moral development or harm it.

There are multiple features of credit card usage that make the topic morally complex. One critique is that the middle and upper classes enjoy access to credit cards with the best rewards programs, while those in lower economic classes are effectively shut out of this system. Those who are not as financially well-off might still qualify for credit cards, but the options available to them come with minimal (if any) rewards incentives.

The majority of the funding for the high-end credit card rewards programs comes from processing fees, which are the fees credit card companies charge businesses to allow their customers to pay with credit. Inevitably, businesses attempt to pass these processing fees onto consumers, as they do not want these fees they owe the credit card companies to chip away at their bottom line. The way this works out in practice, is that businesses simply bake the processing fees into the cost of their products. For instance, while a pizza company might determine they should charge $3 per slice to turn a profit, they bump their prices to $3.10 per slice to pass the transaction fee costs onto customers. This might be a tolerable result for middle class and wealthy customers who have access to the rewards programs funded by those higher costs, but those in less financially fortunate positions are simply stuck with higher bills. This economic reality gives rise to the criticism that the widespread usage of credit results in a tax on the poor.

Another morally salient feature of credit cards is the ease with which they allow you to rack up significant consumer debt. As opposed to being forced to make all of your purchases with cash or the money currently in your checking account, credit cards allow you to kick the financial can down the road. For the consumers who can afford to pay off their credit card bill each month, this feature of credit might not be particularly morally relevant. However, for those stuck in the cycle of overspending, the flexibility offered by credit cards can fuel this potential vice.

Additionally, studies show that the average individual tends to spend more when shopping with credit cards. This is not necessarily a morally significant feature of credit card usage, but it could be relevant for some in determining the role of credit in a maximally virtuous life. In recent years, many people have started turning to philosophies such as minimalism to help declutter and simplify their lives. This movement is marked by a rejection of materialism as a road to personal fulfillment, often encouraging people to buy less. Insofar as one adopts this philosophy in their own life, this might provide a practical reason to dump credit cards.

The judgment of whether or not credit cards are conducive to virtuous or vicious financial habits is likely highly dependent on the individual in question. If upon careful reflection one does not feel their usage of credit contributes to any type of communal economic injustice, nor that it encourages reckless spending in their personal life, perhaps credit cards are compatible with living a maximally virtuous life. On the other hand, if that same reflection leads one to believe their reliance on credit promotes negative consequences both on the individual and societal level, then the pursuit of virtue for that person might involve shredding their cards. Ultimately, the virtue ethics framework is a helpful one for discerning the role credit cards should play in one’s financial life.

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The Ethics of a Global Corporate Tax

photograph of unequal columns of stacked coins

The Biden administration has recently proposed a global minimum corporate tax, but what is at stake in such a policy? When debating public financial matters, it can be easy to get so focused on economics and politics that basic ethical considerations fade into the background. David Scheffer, for example, notes that when it comes to corporate tax avoidance “much of the ensuing debate has centered on how to tax corporate profits fairly and more efficiently…but there has been little effort to associate tax avoidance schemes with corporate abdication of responsibility for advancing critical societal goals.”

Scheffer was writing in 2013, when Starbucks paid only £8.6 million in British taxes over a 14-year period, and paid no UK corporate taxes in 2011 despite over $400 million in sales. U.S. corporations had $1.7 trillion in overseas accounts to avoid taxes. Apple, for example, held about $100 billion in tax haven accounts to avoid taxation in the U.S. In 2020, despite record-breaking profits, Amazon only paid an effective tax rate of 9.4% rather than the actual 21% rate, avoiding over 2 billion dollars in taxes. (Prior to that, Amazon had avoided paying taxes altogether for several years.) As a result of these trends, Scheffer points out that the percentage of tax revenue collected from wage-earners and consumers has increased dramatically, while the percentage of corporate taxation has dropped precipitously.

Unfortunately, figuring out what to do about the situation is no small task. While a nation can try to close loopholes and raise taxes, a corporation can simply move their corporate headquarters to a different nation with a lower corporate tax rate. These tax havens allow companies to minimize their tax liabilities through profit-shifting; companies register their headquarters in an alternative jurisdiction rather than the country where its sales took place.

To crack down on corporate tax avoidance, the Biden administration is now calling for a global minimum corporate tax rate of at least 15%. As Treasury Secretary Janet Yellen recently stated, a global minimum would “stop what’s been essentially a race to the bottom, so that it’s competitive attractions of different countries that influence location decisions, not tax competition.” The idea is that a country could require a corporation to pay the difference between its minimum tax rate and the rate it pays on earnings in foreign countries.

So far, several nations have signaled their agreement with the proposal. Canada, Germany, France, and many others have indicated their interest, while nations like Ireland and Hungary have registered vocal opposition. (Ireland has only a 12.5% corporate tax rate and has encouraged numerous businesses to create subsidiaries there for years to take advantage of this.) Many developing nations have also expressed misgivings about the proposal due to fears a crackdown will discourage foreign investments.

While a global minimum rate may be important for issues of trade and economic development, the issue of tax competition has received comparatively little attention when it comes to issues of ethics and justice. But Peter Dietsch and Thomas Rixen have argued that tax competition undermines the de facto sovereignty of states. Without the ability to effectively set the size of the state budget and the extent of redistribution, states have no fiscal self-determination.

Likewise, Scheffer argues that taxes are a moral issue because the future of human rights depends on a state which is capable of protecting and securing them (and has the funds to do so). Further, while Milton Friedman and others have argued that corporations are primarily only responsible to their shareholders, Scheffer notes that given climate change, rising income disparity, and the backsliding to authoritarianism, there is no such neat division between capitalist pursuits and societal imperatives. He argues:

“The fact that major multinational corporations are paying such comparatively miserly taxes in their home or operating jurisdictions, and doing so legally, means they are minimizing their contributions to social priorities in education, infrastructure, public health care, law enforcement, and even the military defense of countries that provide them with the security and stability that allows them to earn their profit. Societies where these government services are properly financed stand a much better chance of protecting the human rights of the populace.”

Overall, tax avoidance by corporations contributes to the overall decline of government services, which “degrades the operating environment and the very markets within which corporations seek to thrive.” These considerations suggest important moral issues at stake in addressing corporate tax avoidance.

On the other hand, critics of the global minimum corporate rate argue that the move is unfair. While the move would equalize tax rates across the globe, it would also benefit richer nations at the expense of smaller and developing economies who would no longer be able to set lower, more competitive rates to attract foreign investment. Foreign investment represents an integral part of the development plans for lower-income countries, and so the move threatens to reduce the overall welfare of lower-income countries. Even Ireland has managed to dramatically increase living standards after once having one of the worst living standards in Europe, largely thanks to foreign investment. Nations like Mauritius, Paraguay, Uzbekistan, and Kosovo would likely suffer from a decline in tax revenue as well, while a global standard would help nations like the U.S. and France.

But of course, that doesn’t mean that steps couldn’t be taken to mitigate some of these concerns such as direct redistribution of financial means into education and public infrastructure of developing nations. Besides, perhaps taxes should be applied more where economic activity and value creation occurs rather than the location of corporate headquarters. But beyond these practical considerations, Scheffer argues that “the higher ethical perspective” demands that corporations look past minimal standards of compliance and embrace a stronger sense of social corporate responsibility. In order to address the larger problem of which tax competition is merely symptomatic, it’s important to stress the ethical role that corporations have to play in advancing our shared societal goals.

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Should At-Home Workers Be Taxed?

overhead photograph of hands on laptop on dinner table surrounded by food and beverages

Deutsche Bank recently released a report titled “What We Must Do to Rebuild” which contains a number of policy proposals. One of the more noteworthy suggestions concerns a 5% daily tax on employees who choose to work from home. Since “WFH offers direct financial savings on expenses such as travel, lunch, clothes, and cleaning,” it seems that “remote workers are contributing less to the infrastructure of the society whilst still receiving its benefits.” As such, “Those who are lucky enough to be in a position to ‘disconnect’ themselves from the face-to-face economy owe it to [those who can’t].”

But there are a number of reasons to be skeptical of this argument. Some of these reasons have to do with how we define “disconnect”; others have to do with our conception of fairness and who owes what to whom.

First, the study seems to assume that incomes have stayed the same, but nearly half of all American households saw a reduction in income due to COVID-19. More importantly, the study assumes that the money not spent on commutes, take-out lunches, and dry cleaning are not being pumped back into the economy in other ways. In general, most Americans spend all or more than they earn. And spending trends during COVID-19 might be down in some areas, but they are up in others. Amazon profits soared during the pandemic. Americans are pumping more money into home improvement during the pandemic. And Americans who aren’t spending are paying down debt, which still counts as cash going into the economy. In fact, Americans (with means) are spending more in a lot of areas including, pets, education, home improvement, food and dining, shopping, gifts and charitable donations.

Now one issue might be with respect to where at-home workers are spending their money. Amazon, Home Depot, and paying credit card debt all push money out of the local economy. But the areas hit hardest are home to large mega-corporations that push money out of the local economy too. If the moral solution to preserving a local economy is to tax those who benefit from the economy but are sending their earnings out, we should start with broad federal policies aimed at the biggest fish. Amazon would be a good place to start.

16.5% of American households earn 50,000-75,000 a year. There are approximately 128,000,000 households in the US. Let’s assume 40% of those are work-from-home with an average of 50,000/year. A 5% tax increase would generate about $125 billion. But look at how the corporate tax rate has fallen since the 50’s when it hovered around 50%. It’s now down to 21%. And in 2018 60 Fortune 500 companies paid zero on income taxes at all. Raising the corporate tax rate and ensuring that top companies actually pay it would generate more than what you would likely get from squeezing it out of the average American stay-at-home worker.

The one area in which at-home workers might be pulling money out of the economy is when they save their money instead of spending it. But it seems that the tax penalty here should not be on people who suddenly have more money to save, it should be on anyone who chooses to save their money rather than spend it. Again, corporations are also hoarding cash. In 2019 Apple and Alpha had approximately $100 billion in cash each. At the beginning of the pandemic in March of 2020, The Fortune 500 companies had a total of $325 billion cash on hand just sitting there.

This is not a soak the rich argument; I have taken no position on whether we should tax anyone. This is a soak them first if we’re going to soak anyone argument. The same reasons used to justify taxing at-home workers apply just as well (if not better) to taxing larger corporations.

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Tax Reform and the Value of Economic Equality: Part Three

An image of the Capitol Hill dome with a statue in the foreground

Egalitarianism is the assumption behind the criticisms of the recent Republican tax reform legislation (“The Tax Cuts and Jobs Act”) that were presented in the first two parts of this series. Egalitarians of all stripes believe that all persons deserve equal moral consideration. Unequal treatment is the exception and needs justification. Egalitarians disagree on what is required by equal moral consideration. Most egalitarians would criticize the Republican tax legislation for disproportionately benefiting the rich and exacerbating economic inequality in the United States.

The argument in Part One held that economic equality was itself desirable, while the argument in Part Two held that a more economically equal society is desirable because it would promote a society where everyone was treated as equal citizens. Both arguments presume that all persons deserve equal consideration in policy decisions; they just disagree what that consideration would entail regarding the distribution to tax benefits and burdens.

Continue reading “Tax Reform and the Value of Economic Equality: Part Three”

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The Republican Tax Plan: Is Simpler Always Fairer?

A close-up photo of U.S. Income Tax forms.

The Republican tax plan currently under construction in the House and Senate is touted as simpler and fairer.  President Trump often uses those two words, and so do House and Senate leaders. In fact, the website promoting the House version of the plan is fairandsimple.gop. Proponents of tax reform like to brag that their plan will make a tax return fit onto a postcard, the rules will be so simple. And clearly the message is not just “fair and simple.” We are being invited to believe that simplification of the tax code will make it fairer. But is a simpler tax code fairer?  
 Continue reading “The Republican Tax Plan: Is Simpler Always Fairer?”