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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

How N. Europe Exposes GOP Tax Policy Lies

Jeffrey Sachs’s post “The Super Committee’s Big Lie” at the HuffPo has some information Democratic campaigns should find helpful in crafting responses to GOP myth-mongering about taxes. Sachs, a Columbia University economist and director of The Earth Institute, has harsh words for the Super Committee in general. But the most interesting and potentially useful part of his post has to do with making an important distinction between the economies of Southern and Northern Europe:

…Each day, Republicans warn us that if we raise taxes we will end up like Europe, that is, in collapse. Democrats, for their part, go silent, not sure what to make of the argument.
Here’s what to make of it: it’s plain wrong. Europe per se is not in crisis. Southern Europe is in crisis. Northern Europe, by contrast, where the taxes are higher than in Southern Europe, is vastly outperforming the United States.
Consider three key dimensions of the economic crisis: high unemployment, large budget deficits, and high current account deficits (broadly meaning more imports than exports). To compare how countries are doing, I’ll create a simple Misery Index equal to the sum of these three indicators. In 2010, for example, the U.S. had a Misery Index equal to 23.4, the sum of a 9.6 percent unemployment rate, a budget deficit equal to 10.6 percent of GDP, and a foreign (current account) deficit of 3.2 percent of GDP.
When we calculate the Misery Index for the U.S., Canada, and Western Europe, we find that, lo and behold, the U.S. ranks among the most miserable performers, 5th out of 20 countries. The country with the highest Misery Index is Ireland, followed by Spain, Greece, Portugal, and the United States. All five countries deregulated their financial markets and thereby experienced a housing bubble and bust.
The lowest macroeconomic misery is in Northern Europe. Norway has the lowest score, followed by Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Demark. All seven countries have lower unemployment rates, smaller budget deficits as a share of GDP, and lower foreign deficits as a share of GDP, than the U.S. We look pretty miserable indeed by comparison.
Yet, miracle of miracles, these seven countries collect higher taxes as a share of GDP than does the U.S. Total government revenues in the U.S. (adding federal, state, and local taxes) totaled 33.1 percent of GDP in 2010. This compares with 56.5, 34.2, 39.5, 45.9, 52.7, and 43.4 percent of GDP in Norway, Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Denmark, respectively. These much higher levels of taxation are raised through a combination of personal, corporate, payroll, and value-added taxes.
The Northern European countries earn their prosperity not through low taxation but through high taxation sufficient to pay for government. In five of the seven countries, Denmark, Germany, Norway, Netherlands, and Sweden, government spending as a share of GDP is much higher than in the U.S. These countries enjoy much better public services, better educational outcomes, more gainful employment, higher trade balances, lower poverty, and smaller budget deficits. High-quality government services reach all parts of the society. The U.S., stuck with its politically induced “low-tax trap,” ends up with crummy public services, poor educational outcomes, high and rising poverty, and a huge budget deficit to boot.

For a more extensive breakdown of the data in Sach’s ‘misery index,’ see here.
It’s a point that merits more repetition in public debate. I’ve noticed that even many liberals, including some commentators, talk about the ‘troubled European economy,’ in part because of a misguided tendency to think of the EEC as an economic entity that trumps the economic policies of individual nations. I once saw Sachs make the correction with a couple of sentences in a televised panel discussion to good effect, leaving his fellow panelists and viewers better educated about the possible effects of fair taxes, as well as what’s really going on in Europe. It’s not the kind of message you can boil down into a soundbite, but I’m thinking Sach’s argument could be leveraged to help Dems with high-information swing voters.

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