{"id":18465,"date":"2017-10-09T15:59:51","date_gmt":"2017-10-09T19:59:51","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=18465"},"modified":"2017-10-16T17:06:55","modified_gmt":"2017-10-16T21:06:55","slug":"europe-can-only-afford-its-welfare-state-by-heavily-taxing-the-non-wealthy","status":"publish","type":"post","link":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/2017\/10\/09\/europe-can-only-afford-its-welfare-state-by-heavily-taxing-the-non-wealthy\/","title":{"rendered":"Europe Can Only Afford Its Welfare State by Heavily Taxing the Non-Wealthy"},"content":{"rendered":"

\"\"<\/a><\/h2>\n

I argued last year that leftists should be nice to rich people because upper-income taxpayers\u00a0finance the vast majority of the American welfare state<\/a>\u00a0according to government data.\u00a0Needless to say, my comment about being \u201cnice\u201d was somewhat sarcastic. But I was making a serious point about the United States having\u00a0a very \u201cprogressive\u201d fiscal system<\/a>. The top-20 percent basically pay for government and those in the bottom half are net recipients of that involuntary largesse.<\/p>\n

I also pointed out a huge difference between the United States and Europe. Governments on the other side of the Atlantic impose much higher burdens on lower-income and middle-class taxpayers.<\/p>\n

Here\u2019s some of\u00a0what I wrote<\/a>:<\/p>\n

\u2026the big difference between the United States and Europe is not taxes on the rich. We both impose similar tax burden on high-income taxpayers, though Europeans are more likely to collect revenue from the rich with higher income tax rates and the U.S. gets a greater share of revenue from upper-income taxpayers with\u00a0double taxation<\/a>\u00a0on\u00a0interest, dividends, and capital gains<\/a>\u00a0(we also have a\u00a0very punitive corporate tax system<\/a>, though it\u00a0doesn\u2019t collect that much revenue<\/a>). The real difference between America and Europe is that America has a far lower tax burden on lower- and middle-income taxpayers. Tax rates in Europe, particularly the top rate, tend to take effect at much lower levels of income. European governments all\u00a0levy onerous value-added taxes<\/a>\u00a0that raise costs for all consumers. Payroll tax burdens in many European nations are significantly higher than in the United States.<\/blockquote>\n

So does this mean European politicians don\u2019t like ordinary people?<\/p>\n

I could make a snarky comment about the attitudes of the political elite, but I\u2019ll resist that temptation and instead point out that taxes in Europe are much higher for the simple reason that\u00a0government is much bigger<\/a>\u00a0and\u00a0that means some segment of the population has to surrender more of its income.<\/p>\n

But here\u2019s the $64,000 question that we want to investigate today: Why are European governments pillaging lower-income and middle-class taxpayers instead of going after the \u201cevil rich\u201d and \u201cgreedy corporations\u201d?<\/p>\n

Part of the answer is that there aren\u2019t enough rich people to finance big government. But the most important factor is the\u00a0Laffer Curve<\/a>. Politicians can impose higher tax rates on upper-income taxpayers and companies, but that doesn\u2019t necessarily translate into higher revenue. Simply stated, well-to-do taxpayers have\u00a0considerable ability<\/a>\u00a0to earn less income and\/or report less income when tax burdens increase, and they do the opposite when tax burdens decrease.<\/p>\n

That\u2019s\u00a0true in the United States<\/a>, and it\u2019s true in European countries such as\u00a0Sweden<\/a>,\u00a0France<\/a>,\u00a0Russia<\/a>,\u00a0Denmark<\/a>, and the\u00a0United Kingdom<\/a>.<\/p>\n

So even if politicians want to fleece upper-income taxpayers, that\u2019s not a successful method of generating a lot of revenue.<\/p>\n

Which is why a shift from a medium-sized welfare state (such as what exists in the United States) to a large-sized welfare state (common in Europe) means huge tax increases on ordinary taxpayers.<\/p>\n

I\u2019ve\u00a0made this point before<\/a>, but now I have some additional evidence thanks to\u00a0a new report<\/a>\u00a0from the Organization for Economic Cooperation and Development. The Paris-based bureaucracy is probably my\u00a0least-favorite international organization<\/a>\u00a0because of\u00a0its advocacy for statism<\/a>, but it collects and publishes lots of useful statistics about fiscal policy in the industrialized world.<\/p>\n

And here are three charts from the new study that tell a very persuasive story (and a depressing story for ordinary taxpayers).<\/p>\n

First, we can see how the average tax burden has increased substantially over the past 50 years.<\/p>\n

\"\"<\/p>\n

And who is paying all that additional money to politicians?<\/p>\n

As you can see from this second chart, income tax revenues have become a less-important source of revenue over time while social insurance taxes (mostly paid by lower-income and middle-class taxpayers) have become a more-important source of revenue.<\/p>\n

\"\"<\/p>\n

The third chart shows the evolution of the value-added tax burden. This levy takes a big bite out of the paychecks of ordinary people and the rate keeps climbing over time (and if we looked just at European governments that are part of the OECD, the\u00a0numbers are even more depressing<\/a>).<\/p>\n

\"\"<\/p>\n

Now let\u2019s put this data in context.<\/p>\n

The United States now has a medium-sized welfare state financed mostly by upper-income taxpayers.<\/p>\n

But because of\u00a0dramatic demographic changes<\/a>, we are\u00a0doomed to have a large-sized welfare state<\/a>. At least that\u2019s what will happen if we don\u2019t\u00a0reform entitlement programs<\/a>.<\/p>\n

And if we\u00a0leave policy on auto-pilot<\/a>\u00a0and there\u2019s a substantial increase in the burden of government spending, it\u2019s simply a matter of time before politicians figure out new ways of taking more money from lower-income and middle-class taxpayers.<\/p>\n

Yes, they may also impose higher rates on \u201crich\u201d taxpayers, but that will be mostly for\u00a0symbolic purposes<\/a>\u00a0since those levies won\u2019t generate substantial revenue.<\/p>\n

Last but not least, don\u2019t forget that European fiscal burdens will mean\u00a0anemic European economic performance<\/a>.<\/p>\n

Reprinted from Intentional Liberty<\/a><\/em><\/p>\n


\nDaniel J. Mitchell
\n<\/a><\/p>\n

Daniel J. Mitchell is a Washington-based economist\u00a0who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.<\/p>\n

This article was originally published on FEE.org. Read the original article<\/a>.<\/p>\n

\"\"<\/p>\n