Welfare State.

In arguing for his Social Security program, Franklin D. Roosevelt asserted that taxes paid by all beneficiaries would “give contributors a legal, moral, and political right to collect their pensions.”  Americans once accepted that rationale.  Does that rationale still command assent?[1] 

            The welfare state grew by stages in response to new developments in society.  It can be said to have begun in the later 19th Century when European industrial societies responded to a combination of new needs and political conditions.[2]  The crises of the Great Depression and the Second World War generally led to an expansion of services provided to citizens and a more aggressive management of the economy to achieve high employment.  A third great expansion began in the 1960s and 1970s to both share out increased prosperity and to respond to new issues.[3]  In the course of the second and third waves of the welfare state, significant differences emerged between the United States and other “advanced” nations. 

            Many “advanced” countries had a problem with child poverty.  They addressed the problem with direct government payments to families with children.  Many “advanced” countries had a problem with what to do when pregnant women left the work force.  They addressed it by paying for a median of sixteen weeks of maternity leave.  Many “advanced” countries accepted the need to provide day-care (so that women could return to work) and early childhood education.  On average, they pay about $5,200 per child per year. 

            In contrast, among “advanced” countries, the United States spends the third lowest share of Gross Domestic Product (GDP) on direct benefits to families with children; the US doesn’t offer paid maternity leave; the temporary Covid emergency was the first time the US offered paid sick leave; and US public spending on child-care and early education is about half of the median in “advanced” countries.  It’s probably not a coincidence that the US has a high child-poverty rate and a lower rate of female participation in the economy. 

            How do other “advanced” countries pay for this generous social provision?  Ordinary people pay far higher taxes than is the case in the United States.  In Germany, Italy, and France, it is 47-49 percent of total compensation.  Other countries tax consumption through a Value Added Tax (V.A.T.).  On top of this, most “advanced” countries impose carbon taxes.[4]   In the United States, people pay 30 percent of total compensation in taxes.  At the national level, the US doesn’t tax consumption.  The US doesn’t tax carbon emissions.   

            Perhaps one explanation lies in the different economic histories of the US and Western Europe.  In Western European countries, much of the welfare state came into being after the Second World War.  Shared hardships and the general discrediting of conservative political parties allowed the European left and center to forge new institutions.  In contrast, the US enjoyed widely shared prosperity until the 1980s.  So the US is only now trying to figure out the issues.  It is doing after decades of a high-consumption, low-responsibility, weak solidarity mind-set. 

[1] Greg Ip, “Echo of Europe’s Benefits, Not Taxes,” WSJ, 30 November 2021. 

[2] The historian John McKay called this the “responsive national state.”  Its common features included public schools, urban reconstruction, and social insurance for the industrial working class. 

[3] For example, medicine made dramatic advances, but the fruits of those advances could be too expensive for the individual to pay.  So, Medicare and Medicaid. 

[4] Ip describes carbon taxes as “the most efficient way to curb fuel use and spur increased investment in renewables.” 

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