By now you've heard that tonight, President Obama will propose a package of tax breaks for the poor and middle class, paid for by some tax increases for the wealthy, including raising capital gains taxes and closing some loopholes. In my Plum Line piece today I consider this in light of some basic features of the American system and how it compares to our peer countries in Europe. Most people may not realize that taxes in Europe are actually much less less progressive than ours, despite our higher level of inequality. How can we explain that?
The first is that they collect more in taxes than we do in total, but the tax burden falls more evenly across income groups (this is a good time for a reminder that state and local taxes in America tend to be much more regressive than federal taxes, but we're talking here about federal taxes). The second is that they are willing to not make the wealthy pay much more because they take those tax revenues and create a panoply of cash transfers and social services that have the effect of dramatically reducing inequality. A low-income person in Scandinavia gets health insurance, child care, paid family leave, a free or low-cost university education, and other benefits that not only make their daily lives easier but also make moving up the income ladder not the kind of Herculean task it is in America. So it's a good bargain.
In contrast, in America when the government helps people with those kinds of benefits, we do it in a more limited way and on a sliding scale. Look at the Affordable Care Act, which conservatives decry as the very essence of oppressive statism. Its benefits are a function of income: The poor can get on Medicaid, which is free; the middle class get subsidies to help them buy private coverage; the rich don't get help with paying for insurance. When Europeans reformed their health care systems, they just gave everyone coverage.
So it isn't just our tax system that's progressive, it's our social welfare system, too. And that's what allows Republicans to keep it under attack. An old saying has it that programs for the poor are poor programs; they'll forever be vulnerable because their beneficiaries are those without political power. And which programs do Republicans find it impossible to chip away at? Social Security and Medicare, which provide benefits to all seniors, regardless of income. It's no accident that the only people who have ever suggested means-testing Social Security-making wealthy people ineligible-are Republicans. That would change the nature of the program and make cutting it in the future much easier.
It isn't surprising that Republicans are upset at the distributive nature of Obama's proposal; taxing the wealthy at a higher rate (pardon, "punishing the successful") and giving the money to poor and middle-class people is an affront to everything they stand for. But a system that's just a bit more progressive shouldn't bother them too much. How many American liberals would trade the tax and social welfare system we have now for one more like those you find in Europe, with less progressive taxes but more generous services? I'm guessing most would. And how many conservatives would accept a system with truly universal health care, free child care, free university, paid family leave, and so on as the price for getting the "flatter" tax system they always say they want. Probably not many. So maybe they shouldn't complain too loudly.
