


Saturday, December 11, 2010

Who Are the Liberals, Who and Where Are the Rich, and Where Are the Taxed?

Two good columns in the Post-Standard today, one by David Brooks via the New York Times, and the other by Froma Harrop via the Providence Journal.

I often disagree with Brooks's interpretations, but I think he's got it about right in his distinction between the president as "network liberal" and "cluster liberal." 

One of the aspects of Obama's campaign that appealed to Independents and younger (potential) voters was the tantalizing promise that as president he might change the way Washington worked, to make it more problem-solving focused and compromise friendly.  That obviously hasn't happened, and the disappointment over the failure has played a significant role in the decline of his popularity, as well as the reduced Democratic turnout in the mid-term elections.  Yes, there are lots of other factors, but ignoring this one misses something important.  The president explicitly and rightly pointed to it in his day-after-the-election press conference, and promised to readjust his approach.

Brooks's "network liberal" gets at that readjustment, and it's one I think that tactically the president has to make if he wants to have any chance of realizing the broader political-process goals his campaign set forward.

Harrop writes an interesting piece about geographic patterns in the United States when it comes to who exactly is wealthy--in terms of lifestyles actually lived versus sums on a ledger sheet--and compares that against our red-blue political geography regarding the debate over the tax deal.  She finds some rich ironies in who is pushing for what in this debate, relative to actual experience.

But awareness of another aspect of this geographic pattern is required to fully appreciate the ironies Harrop brings out--the state-based variations in public policies and taxation.  I wrote about this last year in a Post-Standard piece titled "US Isn't Europe, But What about NY?"  The gist was that when you look at the overall tax bite of the US relative to the gross domestic product (GDP), we seem pretty lean in comparison with nations in Europe--but if you break it down further to look at the overall tax bite in each state relative to the gross domestic product in that state (GSP), New York begins to look more like Britain than Texas in many respects (even though we don't enjoy many of the services that Brits receive).  Bearing that additional variation in mind further adds to the ironies Harrop identifies.

The Post-Standard no longer appears to have this piece on its website, so I'm including text of it below.

Post-Standard April, 2009

Like Dick Polman writing on this page last week, I too have been ruminating over the criticism that President Obama's budget moves us too close to Europe.  By some accounts, the President's policies even threaten to mark us with the scarlet "S" of socialism. 

Polman emphasized the many differences between America and Europe, and pointed out that in some important respects, being more European wouldn't be such a bad thing.  But taking a further step back, we appear more similar than different, and some of those differences are not what we might expect. 

Overall, our economies are different versions of the same thing—a system that relies on regulated markets, mixes private and public ownership, and provides social insurance through tax revenues.  Consider the following:  Although labor in Europe generally enjoys more political power than it does in the United States, and social welfare policies there are more generous than they are here, even Sweden has its share of wealthy entrepreneurs and executives.  In Britain, there has been a recent move toward greater use of the private sector in areas such as transportation, health care, and education. 

And in the United States, while we might be comfortable with the government purchasing military equipment from private vendors, we would not want to rent our primary military personnel from the private sector, nor do we find it strange that the vast majority of our educators work directly for the government.

Granted, there's no doubt that when we place the various national economic arrangements along a continuum, the United States stands at a noticeable distance from the European pack, particularly in terms of our weaker public sector appetite. 

According to figures posted on Forbes.com and derived from Organization for Economic Co-Operation & Development data, as a percentage of gross domestic product (GDP) overall government taxes in the United States in 2006 were about 28 percent, which is lean when compared with countries like Italy, Norway, and France, all of which gobbled up over 40 percent.  We keep company with Japan, Turkey, and South Korea.

Also note that the areas where we outspend our peers can mark us as different, most notably military and incarceration.

But the appearance of an overall American stinginess on taxes has been aided in recent years by our large federal budget deficits.  At the national level, we spend far more than we tax.  The current budget deficit alone exceeds 12 percent of GDP.  Indeed, one of the newest differences between the United States and Europe is Europe's resistance to deficit-financed spending to stimulate the economy. 

Even if deficit spending is reduced from its current astronomical level, the practice is likely to be with us for a while.  President Obama's budget for 2010, for example, puts federal spending at about 25 percent of our current GDP, and projects a deficit of 8 percent of GDP.

The other important factor masked by international comparisons is the variation among our 50 states. 

Ian Pulsipher of the National Conference of State Legislatures recently provided me with data on state and local taxation as a percentage of gross state product (GSP).  It may come as no surprise that New York is different from the rest of the country.  In Pennsylvania and California, for example, state and local taxes accounted for 9.6 percent and 9.4 percent of GSP, respectively, while in New York the figure was 12 percent.  The only state surpassing New York was Maine.

The tax effects of being in a New York state of mind are underlined by Forbes.com’s 2008 international “Tax Misery Index.”  When comparing the tax rates levied on those in the top income brackets (from all levels of government combined), a worker in New York City could proclaim Ich bin ein Berliner.  In contrast, a top earner in Texas was comfortably sandwiched between Uzbekistan and Ireland—8 spots below Illinois, 15 spots below Britain, 20 spots below New York City, and 37 spots below Sweden.

So while the United States as a whole is distinct from Europe in terms of taxation and spending, in some respects New York looks more like Britain than Texas—except, of course, for things like universal health care and an extensive public transportation infrastructure.

After noting a slew of important economic and policy differences between America and Europe, Polman concludes that the cry of Europeanization is “cartoon hyperbole.”  I think he's got that largely right. 

But further unpacking the differences uncovers some ingredients worth considering—and reconsidering—as we continue to follow our own economic recipe.


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