Vox: You can't build a bigger welfare state without much higher taxes on the middle class

Vox’s actual headline for this piece is “Can Elizabeth Warren build a bigger welfare state without taxing the middle class?” but if you scroll down to the end, the answer is no. The whole piece is very much in line with a recent opinion piece in the Washington Post by Charles Lane which I wrote about last week.

The idea is this: Democratic Socialists like Bernie Sanders and Bill de Blasio and defacto social democrats like Elizabeth Warren like to point to the Nordic model as an example of what America should become, i.e. free health care, free college, more paid leave, etc. At the same time, their rhetoric is focused mostly on “billionaires” and “wealthy corporations.” The answer to all our problems is always found by taxing the top 1 percent until it hurts. The suggestion is that we can give America’s middle class a better deal and they’ll never feel the pinch. The bill will always be sent to someone else. But as Vox points out, that’s not how the Nordic model actually works. In those countries, far more of the burden falls on the middle class than it does here:

“If we think of a stereotypical western European or Nordic country, they’re taxing and spending 10 percent to 15 percent more of GDP than we are, most into welfare state and education,” Lane Kenworthy, a sociologist at the University of California San Diego, said. “As best we can tell, most of these countries, if not all, have tax systems that are slightly less progressive than ours is.”…

In other words, the Nordic countries don’t just have a higher tax take than the US, they get their tax revenue from a broader segment of the population.

“If you’re going to spend an awful lot of money, you have to go where the money is, and the money is all over the place,” Kenworthy says.

While the Nordic countries can have high top rates — 60 percent in Sweden, 56 percent in Denmark, 38 percent in Norway, according to the OECD (this includes local and federal taxes) — they kick in at a substantially lower proportion of the average wage than in the United States. In the US, people who earn about nine times the average household wage (over $510,000) pay the top rate. In the three Nordics, the top rate kicks in at less than two times the average wage; in Sweden, the top rate kicks in at around $77,000, according to the OECD.

In other words, if we follow the Swedish model, the gap between those living below the federal poverty line and those expected to pay top tax rates could be fairly small. There’s a question about what this massive increase would do to incentives for success that the story doesn’t examine. But the main point is that if you want a society like Sweden where everything is “free” you need to tax the bejeesus out of the middle class to make it happen.

Granted we do have a lot of billionaires in the U.S. but Vox points out that very few countries around the world have employed the kind of wealth tax (as opposed to income tax) which Elizabeth Warren has proposed:

Only three OECD countries have wealth taxes. Several European countries have scrapped them, an OECD report says, due to “efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goal” and the revenue hauls have been disappointing. According to researchers at the Ifo Institute for Economic Research, wealth taxes generate revenue amounting to just 3.7 percent of total tax revenue in Switzerland, 1.1 percent in Norway, and 0.5 percent in Spain, and in all three cases the exemption from the wealth tax was substantially lower than in Warren’s plan.

The wealth tax might make progressives feel good, but it’s not going to get the job done. If you want the Nordic model, Democrats would need to start stumping for a doubling (or tripling) of middle class taxes. That’s how it’s actually done in the places that actually do it.

Of course, we all know why Sanders, Warren, de Blasio, etc. aren’t talking about this. People love “free” everything and that’s always an easy sell. Once you show people the price tag, the popularity of these proposals will drop like a stone. America may be having a ‘socialist moment’ right now, but it’s one that’s mostly based on widespread ignorance of what the Nordic model would really mean for them.