Politics, The Economy

Dalton Conley has an interesting Op-Ed in the NY Times suggesting that Democrats accept a more regressive taxation system (i.e. taxing sales instead of wealth) in exchange for better funding of social welfare policies:

Harold Wilensky, the political scientist, once lamented that the American left had not learned the lesson of Europe: allow taxation to be more regressive to collect enough money to finance the programs that liberals hold dear. European governments collect an enormous amount of revenue through the value-added tax (sales tax); their effective tax rates on lower-income workers are much higher than America’s; and they do not rely very much on property taxes (which are the most progressive of all). In return for a more regressive tax structure, Europeans receive a litany of social services that are politically unthinkable in this country.

Sounds great, until you look at the political reality. The reason these systems exist, the reason there are any social services at all, is because of battles that have been fought in the past. Europe has strong labor unions who constantly fight for the maintenance of social services. The U.S. does not. We have what we have because the country came close to anarchy during periods of deep economic depression (1890s, 1930s, and the 1960s when cities were burning). If we give up the gains we made then there are few forces in contemporary America to ensure that regressive taxation will ensure progressive policies. Yes, it might be a realistic deal to make if the progressives had a leg to stand on, if they had any power at the negotiation table. Unfortunately, there won’t be any negotiation — these policies will be rammed down our throats.

Look, for instance, at Clinton’s Earned Income Tax Credit, this helped alleviate the pain of welfare reform” for some of America’s poor (those that work); however, Bush wants to keep the welfare reforms while eliminating these credits. That is what we can expect for any other such compromises. A negotiated settlement can’t work unless there is the wherewithal to ensure that it stays in place.