I had been thinking about writing an article about this for a bit, now, but then the awesome Megan J. McArdle did it for me. (If you hit a paywall, try it with a private browser.)
So, Megan. Love you, girl.
Almost always, when I point out the difficulties of enacting some social program much desired by the left, I am met with some version of the following rejoinder: “Other countries have managed to do this. We passed Medicare and Medicaid and Social Security and most recently, Obamacare. It is obviously possible to do these sorts of things, even in America. The obstructionism of people like you is the only reason we can’t have nice things.”
Well, to start out with, you see the fallacious reasoning in play, there. The conclusion (last sentence) is not derivable from the evidence given. But, let’s not digress on the ability (or lack thereof) of such an individual inability to construct a reasoned argument. They deserve pity, not scorn.
So to continue. Meg, why is it that we can’t have all those nice European things?
The American left has developed a fantasy that a large expansion of the welfare state can be financed by taxing only the rich — a term that is ever more frequently defined to exclude urban professionals earning well into the six figures. In fact, European welfare states pay for themselves by taxing ordinary people very heavily. If the U.S. income tax were designed along Scandinavian lines, its top tax bracket would kick in at around $90,000 a year per household. We’d also have a heavy value-added tax — a highly efficient, but also regressive, kind of sales tax.
Let’s hone in on what’s actually be said there. In Denmark (Crazy Uncle Bernie’s socialist paradise of choice, now that the USSR has fallen) the top income tax rate is 59%. So, anyone who makes an income above 90K is going to pay 59% of that in income tax, instead of the 25% we pay under US rates (and that’s before our generous tax deductions lower that 25% to an effective rate of about 17%).
Is that not enough to make you go “Urk!?” Wait, there’s more:
- Your local income tax will tack another 5–15% onto that. And….
- You pay a VAT of 25% on everything you buy (lower on groceries). So, you can assume that every non food item you buy at the store will suddenly cost you (25% — your current local sales tax) more than it does today.
To be fair, there are two other considerations that offset all that pain:
- You no longer have to pay anything for health insurance, and…..
- Europeans don’t pay property taxes, for the most part. If they have a property tax, it’s usually pretty tiny.
So, with that, you can kind of work out how a Denmark-sized tax system would work for you. Here’s some back-of-the-napkin kind of SWAG:
- So, you make 90K. The gummint takes $53.1K of that, the state gummint takes another 9K (Note 1: 10% for the state tax is an average. If you live in the boonies, figure half of that, or 5%; if you want to be cool and live in Copenhagen, then 15%; change that 9K to 13.5K.)
- Note 2: Sales taxes in the US vary; the average person pays around 8% sales tax and will pay about 1% of wage in sales taxes by the end of the year. Quadruple that and add a little more for your VAT.
- There are really no property taxes in Denmark. So, you get that money (which is the US average of 1% of valuation on an average home price of 258K) added back in. Obviously, if you live in a high property tax state like Texas (2%) double it; if you live in a low property tax state like Hawaii (.32) you may take a third of it.
- Note 4: This varies widely too. Add back in your annual premiums you pay for health insurance. I used national averages.
But, at the end of the day, the person bringing home 90K will have a monthly paycheck of $2,390. But with free health care and other bells and whistles.
Sound good? Anything else, Megan?
The top quintile of households (those making more than about $115,000 a year) do take home an astonishingly large share of U.S. national income. But if you took every dollar they earned and left them to starve, it would not quite pay for a Danish-style welfare state. Obviously, starving your tax base is not ideal fiscal policy. Yet just as obviously, long before you had shaken every last dollar from their pockets, they would have fled the country, hidden their money or decided to work less in order to become net recipients rather than net donors.
She then asks, after you’ve shaken down the rich and gone to universal health care:
After you’ve taken this money to pay for Medicare-for-All, what do you do for an encore? You cannot spend this money on Medicare-for-All and free college and expanding Social Security and a universal basic income or a job guarantee. Until the left acknowledges that the welfare state they want means ordinary people sacrificing a great deal of current consumption, we are not going to have that welfare state.
(Translation: You want Denmark? You need to triple the tax rates on the middle class. Good luck with it.)
Megan goes on to explain in more detail why our health care system is so expensive, and why those costs are, pretty much, baked in. Good read. Thanks, Meg.