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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