Democrats Pursue Europe’s Welfare State on American-Style Taxes

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Biden’s agenda further delineates the link between government benefits and the obligation to pay for them

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Under President Biden, Democrats seek to emulate the wider welfare states in Western Europe without the high taxes Europeans regularly pay. Under the Democrats’ proposal, 90% of American households would pay either less or the same tax, according to an analysis Released by the Tax Policy Center on Tuesday. The richest 1% will pay more than $100 billion in net new taxes imposed next year.

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The US welfare state was never intended to be “user-paid”. Profits are considered more generous to the poor and taxes higher on the rich. Nonetheless, the divide between who receives benefits and who pays for them has become extraordinarily clear under Mr. Biden. It is the logical result of two key priorities: filling the long-standing gap in the social safety net for most Americans, while reversing the widening income inequality that has benefited the wealthiest.

Compared to other industrialized economies, the US differs in several measures of government aid. It spends barely 1% of GDP on direct benefits to families with children, the third lowest in the 38-member Organization for Economic Cooperation and Development. Not coincidentally, the US also has the highest child-poverty rate among the group.

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The US is also the only country in the OECD whose national government does not offer paid maternity leave. Median elsewhere: 16 weeks. Along with South Korea, the US was the only one not to offer paid sick leave benefits until a temporary start during the COVID-19 pandemic.

According to the latest data compiled by the OECD, public spending on early childhood education and childcare in the US is $2,600 per child, half the OECD average. (These figures reflect exchange rates adjusted for purchasing power.) Post-secondary education in the US is also relatively expensive, with the average public undergraduate degree program charging $8,800 per year, the second highest in the OECD after the UK.

Progressives regularly cite these rankings as evidence of America’s failure to maximize security and opportunity for all of its people. Biden administration officials do not cite foreign benchmarks as a target in their own right, but draw on international evidence to make their case.

“There are lessons to be learned from other countries,” a White House official said in an interview last month. For example, she noted that women’s labor force participation is lower in the US than in many other countries, because child care and family leave are less accessible.

Yet if the welfare states of other countries are a blueprint for American progressives, their taxes are not. In Germany, the typical worker pays 49% of her labor compensation in income and payroll taxes (including employer contributions); In France, the ratio is 47%, in Sweden, 43%. In the US, it’s just 30%. The US alone, among the major advanced economies, does not impose value-added taxes on consumers of goods and services.

None of this is going to change. Mr Biden has vowed not to raise taxes on anyone earning less than $400,000 per year. The Democrats’ bill is largely consistent with it, with a few exceptions: for example, smokers would pay a higher cigarette tax, and middle-class shareholders would indirectly bear a somewhat higher corporate tax rate. While Canada, Japan and much of Europe finance maternity payroll taxes, Mr Biden proposes to use ordinary revenue.

The biggest contrast is in the climate. Canada, the UK and the European Union all impose tariffs on carbon emissions, either through a carbon tax or a system of tradable emissions permits, as this is the most efficient way to curb fossil fuel use and increase investment in renewable energy. . To be sure, there are limits to what Europeans will tolerate. French President Emmanuel Macron abandoned a planned fuel-tax hike in the wake of nationwide protests, and Germany’s three leading contenders to form a new government want to reduce a variety of middle-class taxes, including one on electricity.

The US starts with a much lower level of taxes than those countries, yet despite Mr Biden sharing those countries’ climate ambitions, any carbon tariffs from consumers, or even an increased Gasoline tax has not been asked to be raised.

Is it sustainable? Economically, it’s probably this: the taxes the Democrats plan to impose on the wealthy and corporations are not yet at levels that, in the past, have notably hurt economic growth, although they have been working on their plans. may be less than sufficient to finance the

Politically, it may be different. As Supreme Court Justice Oliver Wendell Holmes said nearly a century ago, “taxes are what we pay for civil society.” Later, when Franklin D. Roosevelt started Social Security, he saw its beneficiaries help finance him. Social Security taxes “give contributors the legal, moral and political right to receive their pensions,” he said. The coming years will determine whether the welfare state can continue to expand as the financial ties to its beneficiaries dwindle.

Greg IP [email protected] . Feather


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