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Democrats pursue welfare state in Europe with American taxes

The $ 3.5 trillion tax package Democrats hope to pass soon represents an ambitious expansion of the social safety net, offering regular family allowances, paid sick and parental leave, a universal preschool and free college.

What would most Americans pay for all of these new benefits? Nothing.

Led by President Biden, Democrats seek to emulate the common comprehensive welfare states in Western Europe, without the high taxes that Europeans regularly pay. According to the Democrats’ proposal, 90% of American households would pay less or the same taxes, according to an analysis released Tuesday by the Tax Policy Center. The richest 1% would pay the full $ 100 billion in new net taxes collected next year.

The American welfare state was never conceived as a “user pays”. Benefits are supposed to be more generous for the poor and taxes higher for the rich. Nonetheless, the divide between who receives benefits and who pays them has become unusually sharp under Mr Biden. It’s the logical result of two top priorities: closing long-standing gaps in the social safety net for the majority of Americans, while reversing the deepening income inequalities that have benefited the wealthiest.

President Biden and the Democrats seek to emulate Western European welfare states.


Photo:

Anna Moneymaker / Getty Images

Compared to other industrialized economies, the United States is an outlier on many parameters of government support. It spends just 1% of gross domestic product on direct benefits to families with children, the third lowest of 38 members of the Organization for Economic Co-operation and Development. It is no coincidence that the United States also has one of the highest child poverty rates in the group.

The United States is also the only OECD country whose national government does not offer paid maternity leave. The median elsewhere: 16 weeks. The United States was, along with South Korea, the only ones not to offer paid sick leave compensation before introducing a temporary one during the Covid-19 pandemic.

Public spending on early childhood education and child care in the United States is $ 2,600 per child, half the OECD average, according to the latest figures compiled by the OECD. (These figures reflect purchasing power-adjusted exchange rates.) Post-secondary education is also relatively expensive in the United States, with the average public bachelor’s program charging $ 8,800 per year, the second highest in the world. OECD after Great Britain.

Progressives regularly cite these rankings as evidence of the failure of the United States to maximize security and opportunity for all of its people. Officials in the Biden administration don’t cite foreign references as a goal per se, but rely 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. He noted, for example, that women’s participation in the labor market is lower in the United States than in many other countries, in part because childcare and family leave are less accessible.

Yet if the welfare states of other countries are a model for progressive Americans, their taxes are not. In Germany, the typical worker pays 49% of his labor compensation in income and payroll taxes (including the employer’s contribution); in France, the proportion is 47%, in Sweden 43%. In the United States, it is only 30%. The United States alone, among the major advanced economies, does not impose value-added tax on consumers of goods and services.

None of this is about to change. Mr. Biden has pledged not to raise taxes for people earning less than $ 400,000 a year. The Democrats’ bill largely conforms to this, with a few exceptions: smokers, for example, will pay a higher tax on cigarettes, and middle-class shareholders will indirectly bear part of the corporate tax rate. higher. While Canada, Japan and most of Europe fund maternity leave out of payroll taxes, Biden suggests using general revenue.

The most striking contrast is in the climate. Canada, Britain and the European Union all impose a levy on carbon emissions, either through a carbon tax or through a tradable emissions permit system, as this is the most efficient way. reduce the use of fossil fuels and stimulate investment in renewable energies. Of course, there are limits to what Europeans will tolerate. French President Emmanuel Macron has abandoned a planned increase in the fuel tax in the face of nationwide protests, and the three main candidates for the formation of the new German government want to reduce various taxes for the middle class, including one on electricity.

The United States starts from a much lower level of taxes than these countries, but Mr. Biden, despite sharing the climate ambitions of these countries, did not ask consumers to pay any carbon levy. , or even an increase in the gasoline tax.

President Biden did not ask American consumers to pay any carbon levy.


Photo:

Charlie Riedel / Associated press

Is it sustainable? Economically, it probably is: The taxes Democrats plan to impose on the rich and corporate have yet to reach levels that have, in the past, significantly hurt economic growth, although they may. also not be sufficient to fund their plans.

Politically, it may be different. Almost a century ago Supreme Court Justice Oliver Wendell Holmes said: “Taxes are what we pay for a civilized society. Later, when Franklin D. Roosevelt introduced Social Security, he saw the value of his beneficiaries in helping to fund them. Social security taxes “give contributors a legal, moral and political right to receive their pensions,” he said. The years to come will determine whether the welfare state can continue to grow as its beneficiaries’ financial connection to it wanes.

The Democrats’ plan to pay for President Biden’s $ 3.5 trillion Build Back Better initiative will need to strike the right balance to appeal to the progressives without alienating the moderates. WSJ’s Gerald F. Seib chats with tax policy reporter Richard Rubin. Photographic illustration: Todd Johnson

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Write to Greg Ip at [email protected]

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