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Monday, June 8, 2009

PROGRESSIVE VS. REGRESSIVE TAX-SYSTEMS: WHY ADVANCED WELFARE-STATE SYSTEMS RELY HEAVILY ON REGRESSIVE CONSUMPTION-TAXES

Today's Buggy Post

It's found at Economist's View, the praiseworthy economic web-site run by Professor Mark Thoma of the University of Oregon.  And it deals exactly with the topic set out in the subject-title here, only with more relevance for Americans.  That's because the buggy post there summarizes a complex study of 13 countries' overall tax systems , including the US's --- income taxes, property taxes, sales taxes, estate-taxes, property taxes, and payroll taxes like those levied on wages for social security in the US:  7.65% (including for Medicare) in 2009. 

What the Study Shows

As you'll see, the study finds that the US tax system is by far the most progressive, followed by Australia --- another country with a low-level of welfare-state development.  In the middle, between the poles along of spectrum of a limited welfare-state like ours at one end and Sweden and Denmark at the other with their full-tilt welfare-states, are Canada and the UK --- with, however, the UK found to have an unusually and surprisingly regressive tax-system, mainly because of its reliance on heavy sales-taxes and a less progressive income-and property tax structure.    Aside from the UK, though, the more heavily welfare-oriented a country is in the EU, the more it relies on consumption taxes (VAT --- the value added tax). 

There are all sorts of reasons historically why the English-speaking countries --- the UK, Ireland, Canada, the US, Australia, and New Zealand --- have fostered more limited welfare-states than the Continental West Europeans. 

Still . . .

. . . a major reason is the English-speaking countries'  greater reliance on income and property taxes --- which, even with deductions, are more progressive than other forms of raising taxes.  They are also far more visible in their impact on income-earners, and foster generally a large majority of voters who resist big tax increases and usually favor tax-reductions.  By contrast, an end consumption-tax like the VAT in the EU --- which varies in West Europe from about 17-25% across the countries there (with exemptions for certain items like food and prescriptive drugs except in Denmark) --- is more concealed and provides a steady stream of government revenue for supporting high levels of social-spending of all sorts. 

In West Europe, remember, these policies are widely popular.  And, historically viewed, the development of a large regulatory-and-welfare state system finally ended the usually violent conflicts over capitalism, socialism, communism, and various forms of fascist and Nazi corporatism. 

For the Buggy Post

Click here.   Among other things, you'll find at the end of the lengthy bugged-out argument a link to two earlier, evidence-packed posts left at Economist"s View that set out a far more detailed and systematic historical account of why socialist influences have been so limited in the United States.