If Democrats don't want to go there, they need to stop overpromising
Having recently repatriated from the Netherlands, my takeaway about taxes and benefits are:
The tax brackets were basically 0%, 30%, 40% and filing taxes took all of 10 minutes because it is one A4 with pre-filled information. Taxes and income fall into one of three 'boxes' (e.g., ordinary income versus investments).
Having children in the Netherlands is very, very cheap: it cost us €200 per kid because they charged us for an optional ultrasound. Literally everything else was completely free (and very good). Maternity leave was generous and paid at 100% salary.
We got 85% of our daycare costs reimbursed and then 60% of our private school tuition deducted from our taxes, even though we were in the top tax bracket. Pediatricians are a free and provided by the government, so we paid nothing for checkups, vaccinations, eye exams, etc. Ditto for our GP, which was entirely covered by our very, very reasonable health insurance premiums (which are mandatory for people above the 0% tax bracket). Hospital visits were also free for me (biking accidents) and the kids (also biking accidents and once a flesh-eating bacteria).
There is tax on global assets that excludes your primary home plus the first €25,000 of savings. There is no tax on realized gains. (Which sucks as an expat because you have to file taxes in the US too.)
Local taxes were low—no income tax, but there were provincial property taxes and some city taxes. (But of course there is an 18% VAT on consumer goods, but that is national and is included in advertised prices by law.)
100% of our mortgage interest was deducted from our taxes.
Our taxes were nearly halved for the first 10 years we lived there because of a special tax incentive for 'knowledge migrants'. When it lapsed, we took a 15% hit to our household income, which was one of the reasons we decided to leave.
Our wages were numerically about 60% of what they are for the same jobs in the US. (Converting Euros to Dollars makes no sense because everything is denominated in Euros, you can't spend Dollars and somehow prices—including VAT—were almost always the same as the MSRP in Dollars for consumer goods).
Food is really, really, really cheap in the Netherlands. We fed a family of four for about €200 a week and we bought all organic, high-quality food and drank a lot of wine and scotch.
The two things I notice most, being back in the US, is that 1) money flies out of my bank account here because you have to pay for *everything*. So many little things in the Netherlands are either free or there is only a public version available that there is less to spend money on; and 2) I am accumulating stuff way faster here just because there is more stuff to buy and it is advertised *constantly and everywhere*. (Also owning a car is expensive!)
I like living in the American system *far* better, but I like the Dutch model better in principle and morally.
I remember a time when Democrats were the only ones who said we should be like European counties. Then Republicans elected an American Berlusconi and started talking about how great Hungary is all the time.
That's a very good article! There are two things that I would like to add.
1. To the best of my knowledge, European taxes are much more regressive than American ones, i.e., it's not only that taxes are a higher percentage of the GDP, but also that a higher percentage of the tax revenue comes from people with lower incomes. For example, there is no federal VAT/sales tax in the US, but in Europe that's the main mechanism that funds the EU itself. I think that there is a general agreement that sales taxes are more regressive than income taxes. Moreover, the example I frequently use when I want to explain to Americans how much higher European taxes are, is the price of an iPhone.
An iPhone 13 Pro in Germany costs 1149 euros: https://www.apple.com/de/shop/buy-iphone/iphone-13-pro
An iPhone 13 Pro in the US costs 999 dollars plus sales tax: https://www.apple.com/shop/buy-iphone/iphone-13-pro
As I'm writing this comment, 1 euro is 1.15 dollars. I don't believe there's anywhere in the US where the sales tax would make the American price close to the German price.
2. For historical reasons, European welfare states have been implemented at the member state level and not at the EU level. I think it's much easier to convince Germans to pay higher taxes to support other Germans. But when you had to convince them to support Portugal, Italy, Greece, and Spain, things got ugly quickly. I think that might be similar in the US, but I haven't lived here for enough years to really know. I can imagine that it's easier for California to say "We'll raise your taxes but you'll get healthcare." than to say "We'll raise your taxes and we'll send the money to Mississippi, where healthcare means counseling to talk people out of abortions.".
And a final point. Don't try too hard to become Europe! We came here from Europe because you're not Europe in the first place!
This is a clarifying article. I've noticed two things talking to people about government spending and European welfare states:
1 They don't understand how taxes work or how much they pay. They also have no idea what a VAT tax is and how important it is in other countries.
2 They believe Europeans have the same material standard of living that we do. Outside of Norway and a couple other small countries, Europeans are poor by our standards. Americans are not actually ready to raise their kids in a 2 bedroom apartment, take the bus to work because they can't afford to own a car, and set the thermostat to 60 degrees in the winter because of carbon taxes. However, this is typical for the median European.
All decisions are about tradeoffs. I would say the Democrats should focus on removing money from the Pentagon budget to spend on their programs rather than raising taxes.
Most of my experience is in local politics, but these insights all resonate. I would say the current left strategy is to focus exclusively on the benefits of a more generous welfare state and practically ignore the costs. The thinking is that these benefits excite some people (probably true of your stereotypical young progressive), but the median voter appears to be much more risk averse and skeptical of a 'something for nothing' pitch. I think the prioritization solution is the right one and the only reason I can imagine it not being deployed is that every group threatens to walk if they're not on the laundry list of priorities, but I'm not sure why those threats are taken as credible given 1) where else you gonna go? and 2) the limited evidence that narrow issue-based groups can move votes.
I think you're right that we in Northwestern Europe are just looking at this from different starting points. I don't want to be afraid of poverty and health costs and that sort of thing, but more generally I don't want to live in a society with food shortages and homelessness and all these things.
I earn a good salary and I do have to hand over about 70-75% of that to the government in various ways every year, but in return I don't have to feel too bad about keeping the 25-30%. I understand that the original big gross salary was largely the result of good fortune on my part, and that I am therefore obliged to share most of it with the less fortunate in my society.
Most Americans seem to have this profound belief that they completely 'earned = deserved' the pre-tax number on their paycheck, which makes little philosophical sense to me, especially for richer people. But within that framework it makes sense that someone who earns a small number on their paycheck deserves immiseration.
Obama spotted this early on, but given the reaction to his 'you didn't build that' remark, he obviously decided that a philosophical reckoning with America would have to wait...
Late to the party. On a flight to Puerto Rico for work.
Real quick. I lived in Europe for 12 years and still
Work with Europeans.
I make more money. My health insurance is better than anything they have in Europe, and it’s cheap. My house is bigger. My cars are cooler. Everything Matt says is true.
Hell… we can even get decent beer now.
I do miss the culture and beauty of Europe. The history. Etc…
My son lives in Scotland and he likes its. My daughter tried to live there but came back to the US when she got pregnant. Didn’t want to raise kid in the UK.
I don’t know how to rationalize the trade offs. Small steps I guess.
On a side note. We have to get work Visas for the UK and it’s it’s hard and expensive. Seems dumb and a waste.
The UK and the US should have reciprocal work agreements.
Additionally, it will be interesting to see if Europe itself maintains high levels of social spending as they become ethnically diverse. There's a fair amount of evidence that people will be very generous with social expenditures in an ethnically homogenous place like Norway, but as more and more non-Norwegians move in, you get a backlash to that beyond the horrors of an Anders Breivik. It's often called "racism" in the US, but it can apply to Poles and Romanians living in Denmark just as easily.
Thanks for highlighting what I think is the most problematic and annoying aspect of progressive domestic policy. I would like a better social safety net, but I don't believe the lie that it can be accomplished by taxing a handful of rich people and corporations, particularly when progressives expect that same handful of rich people and corporations to pay for everything they want to do.
And especially considering we are already running huge fiscal deficits, which are only going to get worse considering demographic trends. Medicare and Social Security financing are probably going to have to be dealt with in the next decade and will require more funds from somewhere or yet more borrowing.
I would just expand on how countries are different a bit more. The Nordic countries are all small, are all largely homogenous, and are much less diverse. In short, all those factors result in societies that have a lot more social cohesion and a greater level of trust within the society. High social trust and cohesion are factors progressives tend to ignore when it comes to major national-level policy because, I think, they are too focused on materialist analysis and policy.
The main quibble I have is with this:
"Because the federal government has a uniquely low cost of funds, it’s generally profitable to sell bonds and use the proceeds to buy stock — essentially creating money from nothing. "
That's only marginally true so long as interest rates stay near zero. And even with those low interest rates, servicing the debt is $562 billion this year alone according to the Treasury department. If we look at a 10-year timeline and assume steady-state (not a good assumption), that's $5.6 trillion just in debt payments or about the amount that Sanders wanted the BBB reconciliation bill to be.
And interest rates are probably going to go up soon to fight inflation, which is going to increase borrowing because the debt is continually being rolled-over.
OK you left this line in there without further comment, but it's a BIG DEAL isn't it? "In the highest tax states, America’s combined rates might be higher than in the lower-tax Germany states."
Right, AND when you pay that money in Germany you get Health Insurance included! So wait then, are rates really the problem? The thesis of the article unwinds a bit...
BTW, I knew a Canadian who moved to NYC a while back and said the taxes weren't very different, but now she was paying for healthcare on top of the taxes so it seemed like a bad deal.
Universal health care is an easier sell politically than child allowances.
The fear of not being able to afford health care extends far up the income scale. If a bread winner gets sick and doesn’t recover in a couple of months, his family loses its insurance. Health care is so expensive that it can wipe out most peoples’ life savings. Inheritances can be diminished or destroyed if a parent or grandparent needs long term care. Even families whose net worth pushes seven figures are at risk of being wiped out by an expensive illness or long term care.
The constituency for child allowances is smaller. Professional families won’t feel much better off with an extra $300/month. I would derive much more security from knowing that I will have health care even if Im too sick to work and my inheritance won’t be wiped out if my mom gets Alzheimer’s than I would from an extra $300/month.
Understanding full well this is not a Viable political plan to win the Iowa caucus, I wish dem politicos and some think tank could put together a manifesto on how to achieve the best version of an expansive American social welfare state with consideration for our unique political economy vis a vis Sweden. The Pete/O’Rourke M4AWWI plan is a great step but it feels like those will always be framed as doomed squish attempts vs Bernie’s plan which as written literally exists no where on earth. Health care politics lost the plot a long time ago but it feels so utterly useless for genuine improvements to get proposed, fought viciously over in primaries, only to die in the senate and wash rinse repeat.
This gets back to the REAL debate and trade-off on this. Rising above the populism at the bottom and looking at from what economists debate, the real trade-off here is: What should America of the future be? Should it move to the already stagnant model of Europe - overall closed borders, with broad generous safety nets, or stay the course with a dynamic generally open immigrant (especially poor immigrant) economy with stingy safety nets? After all, open immigration is antithetical to generous safety nets. I choose the latter. History has clearly shown its more dynamic and on net a stronger alleviator of global poverty, even if relative inequality increases. Great post Matty!
I loved this article. Two things:
1) Since Matt was such a pro-MMT person something like 6 months ago, would be really great for him to do a post-mortem on where he went wrong.
2) Completely agree we don’t tax the middle class enough. I don’t know how we get there. This is the country that bases one of his founding stories on a tax on tea. But my parents (~$60k AGI combined) pay something like 8% income tax (in Florida, so no state tax).
I just don’t think people realize this — the standard deduction is $25k for married filed jointly, plus another $1350 if you’re over 65. Then the tax rate is only 12% up to $81k. Since the median household income is <$81k, *this is what most Americans pay*!!! And yet they are complaining about their taxes!!!
This is an unbelievably low rate compared to other countries, yet they constantly complain about their taxes.
Is it just education?
Part of the American lack of appetite for taxes is that, for the taxes we do pay, we provide very little in the way of public services to people who pay them, and have barely established that as something that actually can be done. We spend a ton of money blowing up the Middle East, and a ton of money on transfers to seniors, or to the poor. We spend very little, relatively speaking, on universal programs that provide immediate visible benefits to everyone, to the point where taxes are something that everyone feels are a net loss for them.
GREAT article and great set of discussions. While I might not agree with MattY on everything, his writing is one of the few people I regularly read. What I like is that he is politically aware but not overtly political in his policy suggestions.
Besides, given the reality of the "rural bias" in the Senate, it makes total sense for the "progressives" to move their agenda to the state level. Heck, you can even have cross state compacts, not for everything, but many things. For example, CA, OR and WA could decide to have their version of "Universal healthcare" applicable only to residents of these states.
Finally, I do hope at least some "smart" politicians have MattY on speed dial. He makes a lot of sense....