The alternative to tax-and-spend

By Felix Salmon
October 5, 2011
Matt Yglesias's post on Denmark this morning got me all misty-eyed for European tax-and-spend liberalism:

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Matt Yglesias’s post on Denmark this morning got me all misty-eyed for European tax-and-spend liberalism:

The Nordic countries have become the world leaders in combining high levels of public services with strong economic growth precisely by being pretty relentless at seeking out economically efficient ways to raise tax revenue.

To put this into a US context, two of the biggest and most daunting long-term problems facing the US economy are (1) the fact that Americans aren’t as well educated as their counterparts elsewhere in the world; and (2) the fast-growing obesity epidemic.

Both of these problems are caused, in large part, by America’s very high levels of child poverty.

So if you fix the child-poverty problem, you’ve made a serious dent in both the education problem and the obesity problem.

What’s more, the child-poverty problem really is one of those problems which can be fixed quite easily just by throwing money at it. Give enough money to children in poverty, and they’re not poor any more. Problem solved — at least to a first approximation.

Of course, doing that is expensive, and needs to be paid for. Lower poverty will cause higher growth in the long term, but funding a permanent poverty-reduction program with deficit spending is still not something I’d recommend. So a responsible government adjusts its income so that it can pay for such a thing. The great thing about governments, after all — unlike households — is that they have a lot of control over how much money they’re bringing in. If a government wants more money, it just needs to raise existing tax rates, or implement new taxes.

So you bring in a new tax. On fatty foods — which would also, at the margin, help on the obesity front. Or on financial transactions. Or on carbon. Ideally, something you wouldn’t mind seeing less of. You take the revenues from the new tax, and you use them to make the country a better place. And if the tax is well designed, it will have no visible effect on economic growth.

But in the US, this kind of thinking is anathema not only to the right but also to the left. If fiscal conservatives want to reduce the deficit, they always look first to spending cuts rather than to new taxes — despite the fact that taxes in the US have almost never been lower than they are now.

As a result, the biggest and most daunting long-term problems facing America — things like the fact that the number of uneducated fat people is growing alarmingly — remain unaddressed, and largely ignored.

Is there a conservative way of addressing such issues? I don’t think there is — I think that conservatives will simply say that questions of education and nutrition are a matter of individual choice, and that the government should not concern itself with such things. But if we continue down that road, I fear that the unemployable underclass will only continue to grow. And that anger at the powers that be — whether it comes from the Tea Party or from Occupy Wall Street — will only continue to grow along with it.


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“Give enough money to children in poverty, and they’re not poor any more…”

But will they do any better in school or stop eating junk food?

Posted by Mr.Do | Report as abusive

“Give enough money to children in poverty, and they’re not poor any more…”

But will they do any better in school or stop eating junk food?

Posted by Mr.Do | Report as abusive

“Give enough money to children in poverty, and they’re not poor any more.”

You are assuming that money (or the lack thereof) is at the root of poverty. That simply isn’t true. Poverty, especially generational poverty, has much more to do with attitudes, social support, and role models.

I work at a school where some three quarters of the families receive public assistance. Most of our students live with a single parent. Many do not have a father in the picture at all. A few live with a grandparent, either literal or virtual orphans. (It sometimes gets uglier than this, but I’ll spare you the details of inner-city life.) They come from all racial and cultural backgrounds.

Nonetheless, our students are not poor. All of our graduates go to college (albeit not the Ivies). All are polite, respectful, and (usually) hard-working young ladies. Were you to meet them in an interview, you would never guess at their backgrounds.

“Is there a conservative way of addressing such issues?”

Yes. Get out of your comfy armchair, give up your self-indulgent world-tripping ways, and DO SOMETHING TO HELP. Join the faculty at my school or another like it. Share your compassion, concern, and tears with the students. You CAN AND WILL make a difference — one student at a time.

Or you could throw money at the problem and pretend that you’ve done your best. Work at a $100k/year job and volunteer once a month in a soup kitchen. That way you can feel good with minimal pain or sacrifice.

Sure, we need money. Most of our faculty is paid, albeit below-market wages. (I earn $15k for 25-30 hours a week.) Textbooks and supplies. Rent for the building. And these students will benefit from scholarships, grants, and loans when they attend college. But money ALONE is not the answer.

Posted by TFF | Report as abusive

Couple of problems with this:

“Give enough money to children in poverty, and they’re not poor any more. Problem solved — at least to a first approximation.”

Not in the American system. For the poverty measurements do not measure how much poverty is left after we’ve given people lots of money. They, by and large, measure how many people would be in poverty if we didn’t give them lots of money.

“by being pretty relentless at seeking out economically efficient ways to raise tax revenue.”

Very true about the Nordics that. Their tax systems are less progressive than the US one for example.

Because of deadweight losses you want to tax consumption heavily, even though this is regressive, labour income more lightly and capital and coprorate incomes as little as possible.

Which is what the Nordics do. 25% VAT, yes, high income taxes but really rather low capital and corporation taxes. Standard stuff from the economics of taxation actually: that’s what an economically efficient tax system looks like.

Why, Sweden doesn’t even have inheritance tax at all!

Posted by TimWorstall | Report as abusive

In the U.S. we have the kind of thinking like this:
CEO to Board: We have an expense problem.
Board: What do you propose to do?
CEO: Cut income.

Poverty and obesity are very profitable. And being uneducated. We’ll continue to see them.

Posted by ComradeAnon | Report as abusive

“If a government wants more money, it just needs to raise existing tax rates, or implement new taxes.”

Felix, the US Government creates money ex nihilo. It does not use taxes to “raise” money. And taxes at the Federal level simply extinguish money.

I agree with your stance on addressing child poverty. And it’s money we *already* have, just like we already had money to invade Iraq.

Posted by petertemplar | Report as abusive

You continue to be the number one cheerleader I know for the concept that smart government policy solves all problems. Yet I thought that one was thoroughly discredited back in the 1960s. Perhaps you should look into recent history in more detail.

Posted by Curmudgeon | Report as abusive

I think a good conservative place to start would be to eliminate agricultural subsidies. Another would be to put funding for vocational training on equal footing with college.

Probably the most important thing you could to reconfigure the health care industry so that people paid more of the costs of their poor lifestyles.

Posted by OneEyedMan | Report as abusive

“And if the tax is well designed, it will have no visible effect on economic growth.”

How would this work? Even a tax on something that we all agree is bad – like, say, regular soda – would have a very visible effect on the economic growth of soda companies, grocery stores, businesses that rely on soda company advertising, etc.

I’m also not sure that the science around the statement that a tax on fatty foods would “help on the obesity front.” See recent writings by Gary Taubes, Robb Wolf, etc. for more info on why fat is not as bad as the government has been making it out to be.

Posted by kemeyers | Report as abusive

Curmudgeon, you’re assuming that 1960s policy was smart. It wasn’t smart, it was just policy from people who pretended to be smart, so you can’t discredit smart government policy just yet. Given that politicians run government, and politicians only care about solving political problems, and not the problems that mess with non-politicians’ lives, it’s unlikely that politicians will give us smart government policy.

Posted by KenG_CA | Report as abusive

You say your ideas are anathema to the Left, but provide no evidence. Do you really think so?

Posted by AngryInCali | Report as abusive

I remember when the US stood for something good in the world, when it stood on the moral high ground because it deserved to, and not just because it had the biggest military. But so many of the morals of that time have been replaced by the 1980s ‘Me first’ attitude.

You can’t turn a selfish, inwardly looking self-indulgent society like that which exists in parts or strata of the US that has an “Us and Them” attitude into a socially liberal, Nordic society with a “we’re all in it together” attitude just by pumping money.

What you need to do is alter tax codes to tax more heavily companies that manufacture in China, rather than in the US and sort out the mess of multi-nationals choosing when and where to declare income to be taxed. If fewer jobs went to China, the people who used to have these but now do not will have more money and rise above the appalling US poverty line.

Tax cuts for the rich never trickle down in any meaningful way to the poor. It does increase the sales of foreign made luxury goods, however, which as a non-US resident I should be pleased about, but IMO it isn’t good economics.

If you want a nordic approach, sure, improve education, get rid of the race issue that persists in many Southern States (and which no doubt is strong in some elements of the Tea Party), teach a more inclusive approach to others, but it could take a generation or three to achieve. Oh, and for Heaven’s sake, do teach the difference between Socialism and Communism. Banning home schooling would go a long way to removing idiotic points of view based on mythology not facts as well.

Posted by FifthDecade | Report as abusive

Felix — A cynic would say that politicians from both sides of the aisle absolutely depend on the maintenance and growth of a large population of un(der)educated fat people. They are much easier to sway with demagoguery and fear tactics. We have daily proof of this.

Posted by EpicureanDeal | Report as abusive

“Give enough money to children in poverty, and they’re not poor any more. Problem solved — at least to a first approximation.” Only someone sufficiently unfamiliar with US social welfare policy would make such a sophomoric claim. Felix should read the prescient D.P. Moynihan.

Posted by GlibFighter | Report as abusive

@KenG – Touche. However, that doesn’t make Felix right in his cheerleading for government policy as the solution. Quite the opposite, I think.

Posted by Curmudgeon | Report as abusive

Curmudgeon, I’ve given up on government policy as a solution, but I would be happy with policy that is neutral or slightly positive, as there is always some kind of a policy, whether it is intended or not. Government isn’t free, so we have to pay for it, and until it can be financed with ad-supported websites, we probably will requires taxes (and loans). So what to tax?

Posted by KenG_CA | Report as abusive

At some point between the near future and the distant future, mainstream Republicans will be opposed to general gun ownership. They will be against gun ownership because they will fear the consequences of the vast underclass owning guns. At this point, things will get interesting. Until then, we’re simply treading water, with the rich taking a little more every year.

Posted by FCBonanno | Report as abusive

The capitalist make the food that is good for us scarce and expensive. The nutrition is removed and chemicals added as “vitamins”, this is a failure of capitalism along with the Medical industry’s failure because it is more profitable to poison us and treat the sick than to manufacture healthy food and treat the healthy. This is capitalism in the best light.

Posted by whiteyward | Report as abusive

The main problem with this article is that Mr. Salmon perpetuates the myth that fatty foods cause obesity. Public policy of the past three decades has exacerbated, if not caused the problem outright. Acceding to tax on fatty foods would only serve to make this national health nightmare worse. I won’t be so brash as to say Mr. Salmon should stick to economics, but I would ask that he seek out some subject matter experts who don’t toe the party line on this all-too-important topic.

Posted by thairish | Report as abusive

The former conservative solution was Negative Income Tax. Unfortunately that was before “conservative” stopped meaning “support personal choice for everyone” and started meaning “support the exploitation of most people by an over-class able to write us big checks”.
It is interesting to watch guaranteed income get floated at Occupy movements and shot down by the libertarian types because it might require taxation. The rise of social darwinists in America pretty much guarantees long-term doom and an eventual revolution. I don’t think we are there yet, but unless the government can figure out at least bread and circuses we definitely will get there.

Posted by BlakeA | Report as abusive

@ FifthDecade Was that when only White landowners could vote? When we slaughtered millions of indigenous people and stole their land? When we were enslaving millions of African-Americans, raping them and subjecting them to breeding programs? When marital rape wasn’t a crime? During Jim Crow? When people were dying in coal mines? When we were putting Japanese Americans in internment camps and stealing their property? When women were imprisoned for risking their lives for an illegal-but-necessary medical procedure? When our president refused to acknowledge the disease ravaging the gay community? When Matthew Shepard was beaten? When Rodney King was beaten? When we elected a anti-Semitic criminal as president? When we supported dictator after brutal dictator, terrorist after brutal terrorist and continue to support the drug trade around the world?

This country has never been great; it used to be powerful. The two are not synonymous.

You can not turn a society built on the exploitation of some of its members for the enrichment of others into a fair and equal “all in it together” society without first recognizing that history and reacting against it. We must purposefully reject the culture of our forefathers if we have any chance of becoming a modern state and realize that we are in this together. Those who have been rewarded by these systems are kept apart by their guilt and fear of having it all taken away again, while those who have been punished know that all the good intentions in the world can come to naught over and over again.

Our culture is based on scarcity and fear; it is impossible to wish that away. If rich White men used to feel secure it was only because they knew they’d be the last to suffer when the chips came down. Most Americans have never had that luxury.

Posted by BlakeA | Report as abusive