While comparisons of taxes between countries are difficult, most comparisons still end up with Belgium, Denmark, Sweden, France, Germany, Finland, Norway and Austria in the top. Much like the “Best countries to live” indexes seem to have the same cluster at the top.
Probably not coincidentally.
Whilst not quite at the insane levels that people outside Sweden tend to think they are, income taxes are still really quite high here. For example, it takes an income of 413,200 SEK (42,121.42 GBP at this moment) to hit the 50% income tax bracket in Sweden. The UK doesn’t even have a tax bracket that high (45% is the highest there and IIRC you need to be earning around 150,000 GBP to hit that).
To be honest, taxes have come down under the current government but I’d rather they put it back up so that a lot of the services that have been cut could be put back in place.
What I’m really getting at is that the public expenditure as a % of GDP in a lot of european countries is much higher than in the US. In this table you can see that, if you arrange it by govt. expend. as % of GPD, descending, that the top part is mainly dominated by Euro countries while the US is way lower down.
Now, I am not saying that it is inherently wrong that they spend this money, if it is well spent. The question is here is: is it? Is this money going towards enough good to justify the taxation that it imposes to reach that number?
That chart doesn’t match up with numbers from elsewhere. For instance, it shows Sweden’s expenditures to GDP ratio at just under 70%. By contrast, the Heritage Index of Economic Freedom puts Sweden’s total government spending at 51.3% for the current year. Likewise the chart puts Norway around 75%, while the index puts Norway’s total government spending at 44.6%.
Maybe it was brought up and I missed it, but I thought one of Europe’s biggest problems in maintaining their system is one of demographics. i.e. There are fewer children being born which means there are fewer active workers to support those who have retired.
Even that is a huge percentage of their GDP, though. Our entire budget is less than either of those figures as a percentage of GDP, and many in the US pull their hair out over such a large percentage.
One of the reasons that many European countries can spend like that is because the US spends such a large relative percentage of OUR GDP on our common defense (we spend somewhere between 4 and 5% of our GDP on the military, IIRC…and in another thread many argue that this is too much). Another is simply that Europeans expect those services, and are willing to pay the price in higher taxes, especially on the rich but in reality on everyone who pays taxes in Europe.
Is it viable, long term? Well, they have kept it going so far, but my own opinion is no, it’s not. The reason is that the US is also creeping up on our own limits, budget to GDP wise, and eventually (sooner rather than later, IMHO), we are going to have to start cutting our military budget back pretty severely. I know it’s a matter of faith around here that this will be a universally good thing, but IMHO the reality of that is that Europe is going to have to spend more on it’s military to make up the difference, and that’s going to break the bank, if it’s even politically possible to do. Someone has to watch our collective backs wrt our mutual interests…both the EU and the US are absolutely dependent on trade and bringing in vital resources, and if the world isn’t quite the bunnies and duckies some contend then someone, at some point is going to start encroaching on that, and it’s going to need to be protected. The US has done the heavy lifting in that regard for the last several decades, but when the US can’t anymore then the Europeans will have to step up…or we will all be relying on other countries to not encroach on those vital links, trade and external resources.
That crisis actually has yet to hit in a big way. Up to the late 1980’s or early 1990’s, all the European countries had high enough birth rates to maintain their population. Then the birth rates dropped quickly in places like Italy, Spain, and Greece. So for the past 20-25 years those countries have had low numbers of children. The age groups in which the shortfall exist are just beginning to enter working age, which will mean less tax income for those countries in the years ahead.
Well, that is assuming that the US actually needed to spend as much as they did and that the military operations that the US has done over the past few decades were necessary and/or supported in other countries.
My take on it is that you’ll find that most in other countries don’t think it is necessary and military funding will, if anything, go down.
Speaking as a Norwegian voter: Yes.
Next question.
Speaking as a Danish voter: No.
Next question.
As for the viability of the European Model if typified by the Scandinavian Universal Welfare Model, then no it is not viable. And the Scandinavian countries have long realised this and have been scaling back for years. Since the crisis hit in 2008 welfare perks have been aggressively cut back. There is broad consensus that if we want to retain some welfare we’ll have to cut back in the breath of it. I.e., do away with the universal part of it.
Btw. New York Times is running an article series this month (or next I don’t know), on the Danish Welfare Model. They’ve been interviewing all kinds of people on it.
The tax and, at least in Spain, the bribes. Excuse me, “irregular commisions”.
Given the fact that many American right-wingers imply or state outright that the so called “European Model” tends to strangle markets and trade, it’s interesting to note that many of these high tax leaders in the best-to-live-in category are also leaders in a recent Forbes list of the best countries for business.
Granted, I know little of business journals, but Forbes hardly seems like a hotbed of rabid social democracy.
New Zealand on top. There are lists that try to measure the business climate of various nations, and then there are the actual business decisions taken by companies in various countries. And for some reason the two seldom seem to correspond very much.
Denmark for instance, usually scores in the top-five on business climate lists. And yet Denmark has consistently been dropping on lists of the world’s richest nations (calculated per capita). Same for New Zealand for that matter. Denmark used to be in the top-3 (70s), then in the top-10 (80s). Currently around number 13. In 2020 it is projected Denmark will have dropped to around number 18. So how come if Denmark (& New Zealand, etc.) has such excellent business climate, it is still getting relatively poorer and poorer when none of those above except Norway are characterized by being resource heavy nations?
Add the private component of US healthcare onto the GDP figure and the US is probably similar to some european countries.
This was basically what I was getting ready to say before I read down to your post. The Nordic countries are not nearly the same as they once were, and I have a lot of admiration for their approach. They looked at some of their social programs and basically said “we need to consider some reforms to make these more sustainable.” This isn’t the same thing as “austerity”, but instead were actual structural reforms. Adding virtual accounts to retirement systems has basically created a system where there will never be a terrible issue like we have in the United States where a growing retired population basically is going to increasingly demand more and more of the disposable income of the current working population.
The Nordic countries take the approach that they’re willing to try stuff to see if it works, even if it defies common conventions. If you use the words “school vouchers” you’re a crazy person in the United States, who hates teachers and the teacher’s unions and wants to destroy public schools. In Sweden they don’t flip out because some parents might think a given private school is a better option, and they have school vouchers–and get amazing educational achievement numbers.
I think the U.S. has two major problems in how it does social services:
Those on the left feel that any reform is an attempt to dismantle the entire system, and are unwilling to agree to any reforms.
Because of our historically strongly capitalist society and individualistic streak Americans don’t like redistribution. We’ll create a complex government program with review panels, eligibility criteria and etc so that we can say “well this person qualifies for ‘aid’ based on this complex matrix, they aren’t just being given money from the wealthier taxpayers–they really ‘need’ it.” This is of course just redistribution, but layered in inefficient bureaucracy. Sometimes, and I say this as a conservative American with a strong bent toward the free market, it is more efficient and a better use of money to just openly admit you’re redistributing wealth to the poor and just go ahead and do that.
In terms of healthcare spending we have amongst the highest if not the highest in the world per capita if you factor in both public and private spending.
However, you can’t just say “Sweden and Norway have high spending relative to GDP and those are good countries, so that’s the secret to having prosperity.”
Also, I’m really confused about the spending numbers in that table Oedipus linked to that show Norway at over 80%…other sources I’ve looked at show Norway public spending at 44.6% of GDP.
But anyway, a large portion of the workforce in some of the small Scandinavian countries is made up of government workers. This isn’t something that would reasonably scale, lots of government programs and systems do not require a scaling in workers such that you’d need the same proportion of workers in a country of 5m as you do in a country of 300m.
Any government jobs which involve providing direct services to citizens, you generally do have to scale those up with population. But lots of “back office” jobs, aided by large computer systems and etc, 100 office workers can handle 10,000 “customer accounts” just as easily as they can handle 100,000. So most likely there is no way you get public spending in the U.S. as high as the Scandinavian countries without creating tons of “make work” jobs, there just is not a need for that many government workers, in absolute terms.
Pretty close, though, AFAICT from the data. Looks like the US, with about 300 million people, has about 3 million federal employees or about 1% of the total population, while Sweden with about 9.5 million people has about a quarter-million federal employees or about 2.5% of the population.
Yes, there’s a difference in percentage of workforce employed by the federal government, but not that big a difference. (And, of course, because Scandinavian governments tend to be much more centralized than in the US, if you added in the non-federal government employees in both workforces the difference would be even smaller. Total government employees number about 20 million in the US or about 6.7% of the population overall.)
Maybe not, but for countries without some kind of special resource to prop up the economy, it’s the only way to maintain demand for a First World consumer economy for any length of time.
Market forces in free-market economies will always tend to concentrate wealth over time. This is a vicious cycle and entirely natural. Eventually you end up with a concentration of buying power in the hands of fewer people who have low spending levels per dollar of income, and a great number of people with very little disposable income.
Redistribution helps bring people’s desires and people’s purchasing power together: Higher demand -> higher consumption -> higher productivity -> higher incomes and standard of living. Don’t mistake this for the delusion of endless growth. At some point, no matter what, you will hit a wall due to scarcity of finite resources. But without redistribution you have a society with highly pronounced social classes of patricians and slum dwellers, and a lower maximum productivity.
The idea (popular in the USA) that low taxes and low redistribution are pro-growth is ironically backwards.
Now, Europe today is big on austerity, which is the opposite of growth. That’s fine if they want macroeconomic contraction and more poverty. But high taxes kept them going when they had very high population density and relatively little in the way of local resource advantage. Yes, it works.
Because other countries are learning and doing better?
Yeah, I agree with your take here. The USA used to be innovative, now there’s a small-c conservatism that can seem hidebound. And we’ve seen that on health care Yanks are so suspicious of anyone getting a free ride that we spend more money trying to shut people out of benefits than it would cost just to cover everyone at a basic level. And of course wealthy bankers can get a real free ride anyway.
I gave up on that Ron Paul stuff. I’m for “social welfare” because we’ll never really get rid of “corporate welfare.”
I feel like the European model isn’t viable in the immediate term.
