Monthly Archives: June 2015

Building and paying for a social democratic America

By Mstyslav Chernov (Self-photographed, http://mstyslav-chernov.com/) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

If you are part of the American left, middle, or the non-crazy right, you need to read Lane Kenworthy’s “Social Democratic America”. I’m coming a little late to this party. His book was published in early 2014, and I wish I had heard about it at the time.

Kenworthy lays out an honest, clear, evidence-based argument for why the U.S. should adopt policies that improve the economic conditions of all Americans and – this is important – how we can afford these policies. He also offers a hopeful view for liberal activists and politicians that success is indeed possible in our modern, highly polarized, money-saturated political system.

Kenworthy takes the Nordic countries – mainly Denmark, Sweden, and Norway – as the models for what successful, just economies look like. There are solid reasons to do so. The citizens of the Nordic countries tend to more economically secure and prosperous. And – note this conservatives – the Nordic countries score as well as the U.S. when it comes to economic “freedom”, as defined by the Heritage Foundation.

So, how is this all possible? Step one: taxes. Tax everybody more.

Back in 2007 – at the peak before the housing, financial, and economic crashes – all forms of government in the U.S. (local, state, and federal) spent 37% of GDP, a measure of our national income. Kenworthy would increase that to 47% though a variety of new and increased taxes:

  • 5.0%  National consumption tax (VAT) at a rate of 12%, with limited deductions or a small flat rebate
  • 2.0 %  Return to the 2000 (pre-Bush) federal income tax rates
  • 0.7%  Several new federal income tax rates for households in the top 1%, increasing the average effective tax rate for this group by an additonal 4.5 points
  • 0.6%  End the mortgage interest tax deduction
  • 0.7%  Carbon tax
  • 0.5%  Financial transactions tax of 0.5% on trades
  • 0.2%  Increase the cap on the Social Security payroll tax so the tax covers 90% of total earnings, as it did in the early 1980s
  • 0.3%  Increase the payroll tax by 1 percentage point

Depending on how they’re structured (the devil is always in the details), many of these new taxes would hit higher income people harder. But when I wrote above that Kenworthy had an honest plan, it was mainly because of the inclusion of a value-added tax. The VAT, which is a form of sales tax, would hit people who spend most of their money the hardest – in other words, lower income people.

The fact is everyone will need to pay more in taxes. I’m not arguing here that the wealthy already pay all the taxes or that they don’t pay enough. The fact is we end up having roughly a proportional tax in the U.S. And note again that many of the taxes in Kenworthy’s plan are aimed at top income earners.

No, for me it’s mostly political. Given the power that the wealthy have over how we set policy now, I think it’s unlikely that they will shoulder the entire burden. Also, I think there’s an element of citizenship here. If you pay some of these additional taxes, then you are a very real part of the American system – the much celebrated taxpayer! No one can – or should – question your membership in the club.

But more tax revenue is not the end of the story. Now comes part two: spend that additional money on universal programs that improve the economic well-being of all Americans. Some of Kenworthy’s suggestions are:

  • True universal health insurance
  • One year of paid parental leave
  • Universal early education
  • An increased child tax credit
  • Wage insurance
  • The government as employer of last resort
  • Increasing the minimum wage

The overall effect of these and his other suggestions would be to better insure Americans against the vagaries of economic life – which, by the way, is exactly what wealthier individuals do as soon as they can afford it: buy insurance to protect what they’ve managed to accumulate or buy additional services, like day care, to make working life easier. This is simply a program for expanding those protections for everyone. And by expanding these protections, lower income Americans would see their higher taxes offset in real services and benefits. By the way, this does not suggest that government employees have to actually provide the service. They just help people afford it. That’s exactly the way Medicare works – private doctors are paid by the government insurance program.

Altogether, this is the essence of the Nordic model: pay high taxes and use those taxes to fund services and programs that increase economic security and well-being and enhance economic competitiveness for everyone.

Obviously there’s much more in the book. One particularly valuable service Kenworthy provides is taking on the more frequent objections to his plan with evidence from the social sciences. Certainly, evidence doesn’t always win the day (the reality and danger of man-made global warming, for example), but any self-respecting liberal likes to have that in her or his back pocket.

I have more to say about Kenworthy’s book, but I’m going to spread it out over some posts. While you’re waiting, pick up a copy.