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Two thoughts on dismal finances

April 12, 2010

Peter Baldwin’s Narcissism of Minor Differences is a thoroughly interesting book, if not entirely persuasive in its thesis that the difference between America and Europe, beyond their stereotypes of each other, are mostly alike. In the context of America’s new health care legislation and the rising tide of discontent with America’s high debt and deficits, two points stand out as significant.

The first is that, contrary to the complaints of many American liberals, the US tax system is already quite progressive, even if the distribution of incomes is not. Though on some indices it is just middle of the pack, it ranks ahead of progressive paragons Sweden and Denmark. When we measure the amount of US taxes paid for by the highest earners, we find around that the top 10% of taxpayers pay for roughly half of American taxes, more than European countries. The idea that “the rich” can pay for large amounts of government spending, whether for the warfare or welfare state, and leave the middle class or even lower class alone, is fallacious. European countries extract a higher percentage of their GDP from taxes because they levy consumption taxes such as the VAT and extend high marginal rates onto the American middle classes.

This is not to say that the American economic model is progressive simply because its revenue stream is. It should probably not come as a surprise that a government mostly reliant on the incomes of the wealthy and upper middle class is relatively more responsive to their concerns than those who pay a tiny amount of taxes. But Americans who think that paying down the debt or expanding the welfare state is a question of raising taxes only on “the rich” are kidding themselves…

The second statistic is on government health care expenditures. It is funny to hear Americans fret about the “socializing” of health insurance and the notion of the government spending vast sums on health care, because since Medicare and Medicaid, all this has come to pass. We spend more per person on government health care than almost any country, and that is just on the old, poor, and veterans. Lest this seem too harsh on conservatives, this is also a reminder that regardless of whatever else Obama accomplished, making deep reforms to our inefficient government health care systems, and not simply (or even primarily) our private care, will be vital to achieving a solvent welfare state.

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