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8/15/12
Slipping Behind Because of an Aversion to Taxes — Economic Scene - NYTimes.com
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America’s Aversion to Taxes
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Italy’s health care is part of a more generous social safety net than that of the United States.
By EDUARDO PORTER
Published: August 14, 2012 324 Comments
There is something to be said for universal health care systems.
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When my son developed a rash on an
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doctor downstairs, who diagnosed the
problem at no charge and sent me off
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daughter in med school at the
University of California, San Diego.
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Italy may be in a funk, with a shrinking economy and a
high unemployment rate, but the United States can learn a
lot from it, and not just about the benefits of public health
care. Italians live longer. Their poverty rate is much lower
than ours. If they lose their jobs or suffer some other
misfortune, they can turn to a more generous social safety
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Every developed country aspires to provide a better life for
its people. The United States, among the richest of all, fails in important ways. It has the
highest poverty and the highest infant mortality among developed nations. We provide
among the least generous unemployment benefits in the industrial world. Not long ago
one of the most educated countries in the world, the United States is slipping behind.
The reason is not difficult to figure out: rich though we are, we can’t afford the policies
needed to improve our record. The politicians in Washington all know that we face a long­
term fiscal crisis. By 2020, 70 million Americans are expected to be on Social Security, up
from 45 million in 2000. The ranks on Medicare will swell to 64 million, up from 40
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million in 2000. Virtually every economist knows that just maintaining Medicare and
Medicaid benefits will require raising taxes on the middle class.
But though the nation’s fiscal challenge has taken center stage in the presidential election
campaign, raising more taxes from American families remains stubbornly off the table.
President Obama is willing to accept higher taxes on families earning over $250,000 a
year. But he is going nowhere near higher taxes on the middle class. And Mitt Romney
and his vice­presidential pick, Paul Ryan, are moving decidedly in the opposite direction.
Not only do they want to extend indefinitely the tax cuts passed by President George W.
Bush, but they are also calling for a piñata of additional ones, and would cut social
spending in return.
Citizens of most industrial countries have demanded more public services as they have
become richer. And they have been by and large willing to pay more taxes to finance them.
Since 1965, tax revenue raised by governments in the developed world have risen to 34
percent of their gross domestic product from 25 percent, on average.
The big exception has been the United States. In 1965, taxes collected by federal, state and
municipal governments amounted to 24.7 percent of the nation’s output. In 2010, they
amounted to 24.8 percent. Excluding Chile and Mexico, the United States raises less tax
revenue, as a share of the economy, than every other industrial country.
No wonder we can’t afford to keep more children alive. In 2007, the most recent year for
which figures are available, the United States government spent about 16 percent of its
output on social programs — things like public health, food and housing for the poor. In
Italy, that figure was 25 percent.
American policy makers justify our choice for low taxes with the claim that they foster
economic growth. But the evidence is, at best, mixed. Since 1980, income per person has
grown roughly the same across developed nations, about 300 percent, according to the
International Monetary Fund. It has grown a little faster in the United States than in the
European Union and Canada, but slower than in higher tax countries like Japan, Norway
and Sweden.
To a large extent, this is because we have chosen a tax system that raises relatively little
revenue and inflicts maximum economic harm. Every other industrial country has a
national consumption tax, which can be used to raise a lot of money without distorting
people’s economic incentives. The United States, by contrast, relies mostly on taxes on
labor and capital that damp people’s drive to work and invest, putting a drag on economic
growth. And the tax code is riddled with preferences and loopholes that further distort
people’s economic behavior.
It is tempting to blame the administration of George W. Bush for the tax shortfall. At the
end of the administration of President Bill Clinton, tax revenue reached almost 30 percent
of the nation’s economic output. The federal government ran a budget surplus. The Bush
tax cuts sharply reduced the federal tax collection. Then the Great Recession further
eroded tax revenue. And, of course, nobody wants to raise taxes in the middle of an
economic downturn.
Yet Americans’ aversion to taxes runs deeper. We’ve been collecting less in taxes than other
rich countries at least since the early 1970s, relative to size of the economy. But according
to Gallup, only three times since the 1950s have more Americans said their taxes were
“about right” than said they were “too high.” Scholars have resorted to cultural traits to
explain our reluctance to pay for our government.
Alberto Alesina, an Italian­born economist at Harvard, contrasts American individualism
rooted in the belief that effort brings success with Europeans’ belief in state redistribution
— born of Europe’s long history of inherited wealth. Americans who think they have a fair
shot at striking it rich vote against high taxes on their expected future wealth. Europeans
who believe wealth is mostly a matter of luck and connections are less resistant to paying
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taxes for collective welfare.
Support for taxes also depends on how the money is spent. In Italy and throughout
Western Europe, every time a voter goes to the doctor, he or she sees taxes at work.
By contrast, the ethnic, linguistic and cultural diversity of the United States can sap
support for government redistribution. Ten years ago, the sociologist William Julius
Wilson wrote that American whites rebelled against welfare because they saw it as using
their hard­earned taxes to give blacks “medical and legal services that many of them could
not afford for their own families.” In more homogeneous European countries, taxpayers
may be more willing to pay for social programs because recipients are similar to
themselves.
Where does this leave American society? Many conservatives in the Tea Party movement
believe the government is already too big. Mr. Romney and most Republicans in Congress
have even signed a formal pledge not to raise income taxes. Will no administration ever
again dare raise taxes on the middle class?
It may not be impossible for the American political system to accept the case for a bigger
government, with higher taxes and better public services. Ronald Reagan, George H. W.
Bush and Mr. Clinton passed tax increases to address budget deficits.
Bruce Bartlett, a tax expert who worked in the administrations of Mr. Reagan and the
elder Mr. Bush, says he believes that the deteriorating budget outlook will ultimately
persuade the political class. “We need a few more years in which conservatives try to deal
with the problem solely through spending,” he said. “We need to travel down this road a
few more years and then people will recognize it is futile.”
There are tentative signs that Americans may become more willing to give money to Uncle
Sam. Two of the three times that more Americans said their taxes were “about right” than
“too high” have occurred since 2009. And the economic crisis might even increase support
for government action.
The economists Paola Giuliano of the University of California, Los Angeles, and Antonio
Spilimbergo of the International Monetary Fund found that Americans who experienced
economic shocks tended to become more supportive of government redistribution,
especially when the shock came in their late teens or early 20s.
When elections are decided by today’s 18­ to 25­year­olds, perhaps the American debate
over taxes will come to resemble that in the rest of the world.
E­mail: [email protected];
Twitter: @portereduardo
A version of this article appeared in print on August 15, 2012, on page B1 of the New York edition with the headline:
America’s Aversion To Taxes.
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Americans don't want to pay taxes because:
1. It's human nature. We don't want to give up any more of our personal
resources than we have to. It's why we look for bargains with every purchase.
2. The tax code is unfair, with ultra­wealthy people like Mitt Romney paying a
14% federal rate when many of the rest of us peons have to pay in the 20s or
30s.
3. We do not get very good value for our taxes. We get few, if any, of the great
social benefits found in the European states or elsewhere. American, in the
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Slipping Behind Because of an Aversion to Taxes — Economic Scene - NYTimes.com
end, can be a pretty rough­and­tumble place to live unless you're insulated by a
good income. And here in the New York area, where we face crushing property
tax burdens, we see cops making $150,000­$200,000 a year and teachers as
high as the mid­$100,000 range. And sometimes, the protection isn't all that
good, or is unneeded, and the kids don't do as well in school as expected.
4. To build on #3, we don't get great value from institutions that deliver public
services such as transportation, electric power and healthcare. The New York
City subways work OK, but the Long Island Rail Road doesn't. On Long
Island, for example, residents pay at or near the top in utility rates for the
country's worst service. And the national healthcare statistics demonstrate that
we overpay heavily compared to other nations
5. We see private corporations siphoning off tax money that should go to the
public good, i.e. wasteful defense spending.
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