The Philosophy of Taxes

It’s April. Tax month.

Americans are notoriously anti-tax. (In fact, “tax” may be the only four-letter word that only has three letters).  I’m no different; it’s  April, and I’ve  reluctantly remitted what I owed, while thinking about all the other things I could do with those dollars. But I also know  that reaction is intellectually indefensible, because taxes pay for the kind of world rational humans want to inhabit.

Taxes are the dues we pay for living in a civilized society.

Those well-to-do people protesting their tax burdens would never treat their country clubs and other membership organizations the way they treat/cheat their governments. (How would the Orange Menace react iff Mar-A-Lago members declined to pay their dues?) Those manicured golf courses need tending. The clubhouse roofs and mechanical systems require maintenance. The properly servile “help” won’t be there to bring you your Scotch and soda if they aren’t being paid. Etc.

The people who presumably understand the need to pay dues adequate to keep their clubs and organizations functioning need to acknowledge that–as members of the polity–they have similar obligations to their country.

I think we all agree that government should be efficient–that our tax dollars shouldn’t pay for (frequently hypothesized) “fraud and waste.” And it’s entirely legitimate to argue about whether we really need this or that government program. Most legislative efforts to ease the tax burdens of wealthy folks, however, are based on justifications that have consistently proved to be unfounded.

A recent article from Governing analyzed the effects of two decades of tax cuts in Ohio.

Tax reform is a politically charged issue, with conservatives saying lower income taxes help drive economic prosperity, and progressives saying tax cuts have functioned as handouts to the rich, while defunding crucial public services.

Despite those stark differences, both right- and left-leaning groups who spoke to cleveland.com said the impact of Ohio’s income tax cuts on the state economy overall throughout the past 20 years has been minimal.

“The theory behind it is that cutting these taxes will spur on extra growth and get extra investment,” said Jonathan Ernest, an assistant professor of economics at Case Western Reserve University’s Weatherhead School of Management. “You would expect after some number of years to start seeing growth, and we haven’t necessarily seen that.”

Ohio’s experience is not an anomaly, but–as with so many other elements of our highly politicized policy process–evidence has been swamped by ideology.

 We need to see the majority of anti-taxation arguments for what they really are: rejections of the importance–or even the existence– of the common good, and a disinclination to help maintain important social goods accessible to their fellow citizens. (Let’s call that disinclination what it is: selfish. It isn’t “self-interested,” because genuine, long-term self-interest requires the maintenance of a stable, flourishing society–and highly unequal societies are notoriously unstable.) 

Anti-tax Republicans push back against progressives who want to move the U.S. policy in the direction of Scandinavian countries–despite the fact that those countries score far higher on measures of happiness and social cohesion– by warning against “confiscatory” tax rates.

Actually,despite the mythology, Scandanavian taxes aren’t much higher than our own, once we combine Americans’ local, state and federal burdens–and their citizens get much more value for their money, including relief from the enormous costs of higher education and health care.

As the author of the linked article wrote,

US critics say that Swedes pay 56 percent — so the government takes over half of your money. This is not true — 56 percent is the marginal tax rate, i.e. what high earners pay on income over a certain amount in both state and local taxes. Only 15 percent of Swedes pay tax at this rate. It turns out the average Swede pays less than 27 percent of his or her income in direct taxes. As I’ve written elsewhere, my wife and I pay about 22 percent of our US income in taxes. Our Swedish income tax was 31 percent. So, yes, our income taxes in Sweden were higher than in the US, but we still paid less than one-third in tax.

And you get far more for your taxes than you do in the US. In Sweden, college is free and students get a housing stipend….

The 33 million Americans who are still not covered by health insurance don’t have much choice when they get sick, unless you think, “Your money or your life?” is a choice. Paradoxically it turns out the bloated, heavily lobbied, privatized US system spends more tax money ($4,437) per person than Sweden’s socialized health care ($3,184).

Eradicating medical and educational debt would do a lot more to boost America’s economy than adding tax loopholes for the wealthy.

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Taxes and the Common Good

I know “real Amuricans” sneer at the notion that we might learn from the experiences of other countries. Universal healthcare? A commie plot! Decent mass transit? People who can’t afford–or don’t want– cars shouldn’t be coddled! A comprehensive social safety net? You are a commie!

Every so often, however, a “real American” finds living in a country that actually offers these and other subversive services is pretty attractive. Vox recently published an essay by one such person, whose job and that of his wife requires that they split their time between Wisconsin and “high tax” Sweden.

My wife and I have been dividing our time between jobs in Sweden and Wisconsin for the past dozen years, and I’m here to tell you that taxes in Sweden are not that high. To my surprise, I found that there are lots of things to love about the Swedish tax system. Swedish taxes are easy to pay, rational, and efficient. Best of all, rather than take away opportunities, Swedish taxes expand them.

The writer goes on to list things he loves about Swedish taxes. No kidding.

It turns out the average Swede pays less than 27 percent of his or her income in direct taxes. As I’ve written elsewhere, my wife and I pay about 22 percent of our US income in taxes. Our Swedish income tax was 31 percent. So, yes, our income taxes in Sweden were higher than in the US, but we still paid less than one-third in tax.

And you get far more for your taxes than you do in the US. In Sweden, college is free and students get a housing stipend. A colleague’s daughter, Kerstin, just completed a five-year dental program. Her family paid nothing for her education.

In Sweden, tax forms are simple, and they come already filled out. The author points out that tax-preparation services cost American taxpayers more than $32 billion per year–not to mention hours of citizens’ time and effort.

And in Sweden, there are no property taxes.

When the conservative government, favoring lower taxes, came to power in Sweden in 2006 one of its first steps was abolish the property tax and replace it with a fixed fee. The real estate fee for services is 7,112 SEK per house ($825 at current exchange rates).

This is the same for everyone no matter what the assessed value of the dwelling. The fee is $12 a month for our co-op apartment in Stockholm. If we owned the same property in Madison, our taxes would be $18,000 a year.

There are sales taxes in Sweden, and they’re high, but even then the author finds mitigating factors:

Sales taxes are high in Sweden, but you don’t see them, and that makes them easier to pay. If something costs 100 kronor, you pay the 100 kronor! Only when you look at the receipt do you see that it costs 80 kronor and 20 kronor for VAT (value-added tax). Many things are taxed at lower rates — 12 percent to have dinner out or buy groceries, 6 percent (only half a percent higher than our sales tax in Madison) for books and tickets to cultural events and in-country travel. Health related items: zero percent.

It is true that sales taxes are regressive; poor people pay a higher proportion of their income in this tax. In the US, a 25 percent sales tax would have to be offset with some kind of subsidies for our many poor. But because Sweden has a narrower income distribution, its sales tax is less regressive than in the US.

A fascinating difference between the U.S. and Sweden is that, in Sweden, if the government wants to encourage an activity, they don’t do it through the tax code.

One of the reasons US income tax preparation is so awful is that we try to reward certain activities by providing a tax deduction. If you do some good deed (like putting in a solar panel) and if you can find the receipt and documentation…, then you can list a number on Form H, line 36, that will lower your taxes.

Does this feel good? Do you feel rewarded for your solar panel?  Or is it just another damn number on a tax form?

If the Swedish government wants you to do something, they give you the money. For example: Having children is good for the society and costs parents money. In the US, you get a deduction on your income tax for dependents. In Sweden, you get a check every month and you can use it to buy shoes. For one child you get $120 a month and up to $620 for four children. Every parent gets a check.

The most persuasive argument for Sweden’s approach (at least, from my perspective) is that the taxes generate income used to provide collective goods that make life better and less costly for citizens.

Not having to pay for college gives the best and the brightest the opportunity to attend any school they choose — equalizing opportunity on merit, not parents’ wealth.

It’s not just college. Public amenities like parks and hiking trails, excellent and frequent public transportation, and–oh yes– universal health care.

Paradoxically it turns out the bloated, heavily lobbied, privatized US system spends more tax money ($4,437) per person than Sweden’s socialized health care ($3,184).

This is due to Swedish efficiency rather than poor service. I do get to choose my doctor, have high-quality care a short walk from my home, same-day appointments and short waits when I walk in unannounced.

Keep chanting “We’re number one! We’re number one.” Maybe we’ll convince someone besides ourselves..

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