The Economics of Politics (Part 2)

Well, I meant to finish this BLOG a week or so ago. Sorry…I went skiing in Colorado instead. But I’m back!

I finished the first part suggesting we need to take a look at the tax rates – said another way, the cost – of universal health care and a free public education – including a college degree.

But first some bad news: Free isn’t free. We all know this.  Meaning if a country chooses to provide a ‘service’ to the public, in some way, in some fashion, that service must be paid for.  Perhaps not by the person receiving the service – but paid for nonetheless. How do other countries pay for these choices? Let’s take a look.

First, let’s take a look at so data.  Here are the five (5) data points for each country listed below:

1. “Country Corporate tax”; 2. Individual Tax Rate (Max); 3. VAT / GST; 4.  Is Universal Health Care free?; 5. Is College Tuition free?

Let’s take a look:

Austria                     25.00%    50.00%    20.00%    YES    YES
Belgium                   33.99%    55.00%    21.00%     YES      NO
Denmark                 23.50%    48.00%    25.00%    YES    YES
Finland                    20.00%    61.96%    24.00%    YES    YES
France                      33.33%    45.00%    20.00%    YES     NO
Germany                  29.65%    45.00%    19.00%    YES    YES
Ireland                     12.50%    40.00%    23.00%    YES     NO
Italy                          27.50%    43.00%    22.00%    YES     NO
Japan                       38.01%    50.00%       8.00%    YES     NO
Norway                    25.00%    46.90%    25.00%    YES    YES
Russia                      20.00%    13.00%    18.00%    YES    YES
Spain                        25.00%    49.00%    21.00%    YES     NO
Sweden                    22.00%    59.70%    25.00%    YES    YES
Switzerland            17.92%     13.20%       8.00%    YES    YES
United Kingdom   20.00%    45.00%    20.00%    YES     NO
United States         35.00%    39.60%        None      NO     NO

Interesting, no?  Every country listed – even Russia – provides universal health care for their citizens.   College tuition is provided by many; most of those showing a ‘no’ above while not free, are (by comparison to the US cost) rather inexpensive.

And how are these costs paid for?  Take a look at the various tax rates above.  Only Switzerland and Russia have lower maximum individual tax rates than the US.   OK…it looks like our comparison countries have higher personal tax rates than the US.

How about the ‘Value Added Tax’ which is common in Europe?  The US has none.  (NOTE:  As we all know, individual US states and/or counties do charge sales tax.)   The lowest at 8% is Japan and, again, Switzerland.   Many of the European VAT tax rates are in the 20s – and in Denmark, you will pay 25% of the sale price of, say, a piece of luggage, in VAT.

Ouch.

Common in the news of late are mergers in the form of a ‘tax inversion.’    Meaning, a US corporation is merging with a foreign corporation, changing its domicile to that new country, to take advantage of that country’s lower corporate tax rate.   Column 1 above shows corporate tax rates.  On this list, only Japan has a higher corporate tax rate, today, than the US.   Even if we chose to, we probably can not squeeze any more tax revenue from this source.

This is clearly a difficult topic.  With no right answer.  But making the choice to provide ‘free medical care’ and ‘free college tuition’ to all US citizens means somehow more taxes will need to be collected.

If corporations are already leaving the US because our corporate tax rates are among the highest in the world, the choice would probably be left to some form of individual tax.

Perhaps a US VAT is the answer?  This was the choice of the countries above.   Or would a much higher tax on millionaires and billionaires be the answer?   Other than France, with its 75% ‘supplemental’ tax rate on incomes exceeding $1 million euros per year, countries haven’t taken this path.

Questions, questions, questions.