We must render to Caesar what is Caesar’s, but who gets to say what is Caesar’s – Caesar alone, or does God have a say?
Some of us will stay up late tonight to file taxes on Tax Day. But Thursday is arguably more important. It marks “Tax Freedom Day”, the date up to which we must corporately work to pay off the 30 percent of GDP taken away by federal, state, and local taxes. An entire third of our useful labor is spent funding the government. What does the Church have to say about this?
At the start of modern Catholic social thought, Leo XIII warned that government would be able to achieve its beneficent goals, only “provided that a man’s means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair.” (Rerum novarum, 47)
But what counts as fair? Presumably, that judgment could be reached, only by those adept at apportioning out the joint roles of “nature” and of “man” – not an especially strong suit for us today.
This much seems correct: a fair tax burden would need to be something short of what “drained and exhausted” taxpayers. Thus a limit on government is implied. The classical and scholastic concept of taxes was: financing for the necessary activities of government. It was expected that there would be a match between what government reasonably attempted to do, and the burden that taxpayers could bear.
Now suppose a tax burden, accurately calculated, would “drain and exhaust” taxpayers: then ipso facto the government would be overreaching. Start with the premise that the current $120 trillion in “unfunded” liabilities, if accurately assessed, would imply a crushing tax burden: it follows that government must reduce its ambitions, and civil society must expand.
St. John Paul II was taking a similar approach when he taught, repeatedly, that tax policies should aid the family. In doing so, he was echoing a magnificent paragraph in the Vatican II document on lay apostolate, which bears quoting today:
It has always been the duty of Christian married partners but today it is the greatest part of their apostolate to manifest and prove by their own way of life the indissolubility and sacredness of the marriage bond, strenuously to affirm the right and duty of parents and guardians to educate children in a Christian manner, and to defend the dignity and lawful autonomy of the family. They and the rest of the faithful, therefore, should cooperate with men of good will to ensure the preservation of these rights in civil legislation and to make sure that governments give due attention to the needs of the family regarding housing, the education of children, working conditions, social security, and taxes; and that in policy decisions affecting migrants their right to live together as a family should be safeguarded. (Apostolicam actuositatem, 11)
This rich and sharp teaching on taxation is presented in a highly attenuated form in the Compendium of Catholic Social Doctrine: “Tax revenues and public spending take on crucial economic importance for every civil and political community. The goal to be sought is public financing that is itself capable of becoming an instrument of development and solidarity. Just, efficient and effective public financing will have very positive effects on the economy, because it will encourage employment growth and sustain business and non-profit activities and help to increase the credibility of the State as the guarantor of systems of social insurance and protection that are designed above all to protect the weakest members of society.” 
The Compendium presumes that the State has the function of redistribution, and its sole comment about the family and taxation falls under that idea: “In the redistribution of resources, public spending must observe the principles of solidarity, equality and making use of talents. It must also pay greater attention to families, designating an adequate amount of resources for this purpose.”
As for the Catechism, its only teaching on taxes is that tax evasion is unjust. [2409, see 2240]
More troubling, though, than what seems to be a lack of balanced skepticism about taxes in these sources is the lack of attention to the tax-exempt status of churches. How do we ensure that a church and its property are rendered to God not Caesar?
We are at risk. Even though the exemption is deeply entrenched in U.S. tradition, law, and tax policy, we can expect it will come under greater attack, as Christians are increasingly castigated as “enemies of the human race” (as Justice Scalia warned). In the popular mind an exemption is a favor: How, then, can the government show such favoritism without violating the First Amendment?
Caesar himself has given some answers. Churches often provide services that government might otherwise have to provide. Churches do not engage in any economic activity that generates taxable income. If church property were taxed, churches could hardly be built in cities, where people live. Whatever can be taxed can be destroyed, but the government should not have the power to destroy any religion.
And yet, Caesar’s guide is always expedience. And, besides, the deepest answer comes from God, not Caesar. It pertains to the independent sovereignty of the Catholic Church, enjoyed analogously by Christian churches and other religions, and explained by Leo XIII: “The Almighty, therefore, has given the charge of the human race to two powers, the ecclesiastical and the civil, the one being set over divine, and the other over human, things. Each in its kind is supreme, each has fixed limits within which it is contained, limits which are defined by the nature and special object of the province of each.” (Immortale Dei 13)