[Pophealth] social benefits and economic costs of taxation

[Stephen Bezruchka]

The following report presents a variety of indicators across countries 
linked to taxation differences.  This comes from a progressive Canadian 
think tank.

Below is a summary and the url to download it is
http://www.policyalternatives.ca/documents/National_Office_Pubs/2006/Benefits_and_Costs_of_Taxation.pdf
also http://tinyurl.com/yztl9a

STephen
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       The Social Benefits and Economic Costs of Taxation
       A Comparison of High and Low-Tax Countries

       Neil Brooks and Thaddeus Hwong, Canadian Centre
       for Policy Alternatives, Dec 2006

       Summary
Tax cuts are disastrous for the well-being of a nation's citizens.
Findings from this study show that high-tax countries have been more 
successful in achieving their social objectives than low-tax countries. 
Interestingly, they have done so with no economic penalty.
On the majority of social measures we examine, high-tax countries rank 
significantly above low-tax countries. On a number of the economic 
indicators we examine, low-tax countries rank above high-tax countries, 
but the difference is almost never significant.
We examine 50 indicators that are commonly used to measure a country's 
social progress. On over half of these indicators (29), the outcomes in 
high-tax Nordic countries are significantly better than those in low-tax 
Anglo-American countries, and on most of the remaining
indicators (13), social outcomes are somewhat better in Nordic countries. 
In short:
-Nordic countries have significantly lower rates of poverty across almost 
all social groups;
-as an indicator of how well a country protects the vulnerable, the 
elderly have significantly higher pension income replacement rates in 
Nordic countries and the income received by those with
disabilities relative to the population is much higher;
-income is distributed significantly more equally in Nordic countries;
-on every measure we examine there is
significantly more gender equality in Nordic countries;
-Nordic workers have significantly more economic security;
-in terms of health outcomes, infant mortality rates are significantly 
lower and life expectancy is longer in Nordic countries;
-in terms of educational outcomes, a greater percentage of the population 
completed secondary school and university in Nordic countries and 15-year 
old students score higher on math tests;
-as a measure of personal physical security, homicide rates are lower in 
Nordic countries;
-as indicators of the degree of community and social solidarity in a 
country and general happiness and life satisfaction, there is 
significantly more trust among individuals and for public institutions in 
Nordic countries;
-there is significantly less drug use in Nordic countries; individuals 
have significantly more leisure time; individuals have more freedom, 
according to a widely referred to index of economic freedom; individuals 
report more life satisfaction; and they are more likely to discuss 
politics with friends;
-Nordic countries rank much higher on an index of environmental 
performance, and the Nordic countries give significantly more in foreign 
aid than Anglo-American countries.
Low-tax Anglo-American countries rank higher than Nordic countries on only 
seven out of the 50 social indicators. In each case, it is a trivial 
difference that could be easily due to chance: a slightly higher 
percentage of the 25-64 age group completed either college or university;
15-year-olds did slightly better on reading and science tests; a slightly 
greater percentage of people report a greater sense of freedom; there are 
on average a lower number of suicides; and a slightly greater percentage 
of individuals report they are very happy.
With respect to the pursuit of economic goals, the indicators we examine 
suggest high-tax countries have achieved their social success with no 
economic penalty. Over the past 15 years, the low-taxed Anglo-American 
countries have
experienced slightly greater economic growth than the high-taxed Nordic 
countries, but it would appear that the Nordic countries have positioned 
themselves for greater growth in the future. Of the 33 economic indicators 
examined, the Nordic countries lead on 19 indicators and the 
Anglo-American countries on 14.

The high-tax Nordic countries have:
-a marginally higher GDP per capita;
-a higher GDP per hour worked;
-significantly lower unit labour costs and significantly lower rates of 
inflation;
-higher budget and current account surpluses;
-a higher total labour participation rate, and a higher female labour 
participation rate;
-much higher rates of household saving and net national saving;
-a higher ranking on indexes measuring innovation;
-a higher percentage of GDP spent on research and development and a higher 
percentage of their workers working as research and development 
researchers;
-a higher level of network readiness;
-a higher percentage of broadband subscribers;
-a significantly higher ranking on their growth competitiveness by the 
World Economic Forum; and
-a higher ranking on Richard Florida's global creativity index.

Anglo-American countries have:
-a higher rate of growth in GDP per capita between 1990 and 2004;
-a higher rate of growth in GDP per hour worked from 1995 to 2004;
-a higher rate of growth in multi-factor productivity from 1995 to 2002;
-a lower national debt;
-a significantly higher growth in employment from 1992 to 2002 (this is 
the only measure on which Anglo-American countries exceed Nordic countries 
in a way that is statistically significant);
-a lower rate of general unemployment, a marginally lower rate of 
long-term unemployment, a marginally higher rate of male labour 
participation rates;
-a greater change in fixed capital formation; and
-greater inward foreign direct investment and inward foreign direct 
investment performance.

In making their case for lower taxes, tax cutters in Canada frequently 
point to the United States, which has one of the lowest tax levels of the 
industrialized countries in the world, and suggest that Canadian society 
should strive to become more like American society. So, in addition to 
comparing social and economic outcomes broadly between low- and high-tax 
countries, we highlight the social and economic outcomes in the United 
States and ask: should Canadians really want their country to become more 
like the United States? To provide some basis for comparison, we compare 
the outcomes in the United States with those of another country Canada 
might wish to emulate: Finland.

Our findings show Americans bear incredibly severe social costs for living 
in one of the lowest taxed countries in the world. For a strikingly large 
number of social indicators, the United States ranks not only near the 
bottom of the 19 industrialized countries, but it ranks as the most 
dysfunctional country by a considerable margin:
-Poverty is widespread. A greater percentage of Americans, and in 
particular children and the elderly, live in poverty in the United States 
than in any other industrialized country in the world.
-The income of vulnerable citizens, such as the elderly and those with 
disabilities, is much lower compared to others in the United States than 
almost all other industrialized countries.
-Living conditions are shockingly unequal.

By any measure, income is distributed more unequally in the United States 
than in every other industrialized country. In 2004, America's richest 1% 
held more of the nation's wealth than the bottom 90% (34.7% versus 29.9%).
-Ordinary workers in the United States have less economic security than 
workers in any other industrialized country (as shown by a comprehensive 
index of economic security developed by the International Labour 
Organization).
-As an indication of gender inequality, women in the United States still 
hold a relatively small percentage of positions in the professions, 
legislative bodies, and senior civil service.

In contrast to the United States, Finland ranks near the top of the 
industrialized world on each of the following social indicators:
-The percentage of the population living below the poverty line is very 
low (for example, only 3.4% of children).
-The elderly and those with disabilities have incomes that are close to 
those of the rest of the population.
-Income is distributed relatively equally.
-Women hold about 50% of the positions in legislative bodies and senior 
civil service.
-Workers in Finland enjoy one of the highest levels of economic security 
among workers in the industrialized world.

It is well known that there are profound problems with the United States' 
health and education system -- where values such as selectivity, 
diversity, and choice predominate and a large percentage of the spending 
is done through the private sector. The United States spends over twice as 
much of its GDP on health care than Finland (15% versus 7.4%), and yet 
U.S. health care outcomes remain far worse -- indeed, worse than most 
other industrialized countries. For example, the percentage of children 
who die at birth in the United States is the highest among industrialized 
countries. Finns live longer than Americans, and the rate of infant 
mortality in Finland is less than one-half the American rate.

The United States spends a greater percentage of its GDP on education than 
Finland spends, yet the Finnish education system -- which is a 
comprehensive public system based on equity and the professionalism and 
training of teachers -- achieves much better outcomes. American 
15-year-olds rank near the bottom of OECD countries when it comes to 
science and math skills. By contrast, Finnish 15-year-olds rank first in 
the world in science and math skills. American students also rank 
relatively low on reading skills, while the Finnish students come first in 
the world in this area as well.

This pattern, with the United States ranking about the lowest among 
industrialized countries and Finland near the top, is evident on most of 
the remaining social indicators we examine -- relating to social goals 
such as personal security, community and social solidarity, 
self-realization, democratic rights, and environmental governance.

We will not review them all here, except to note that, although Canada's 
Conservatives appear ready to adopt aspects of the United States' justice 
system, such as mandatory criminal sentencing, the United States is by a 
wide margin the most violent industrialized country in the world (measured 
by the murder rate). Americans themselves express the third lowest measure 
of confidence in their justice system, in a tie with Belgium. Italians and 
Australians have slightly less confidence in their justice systems.

This brief review of how well industrialized countries have achieved their 
social goals shows the United States ranks lower than most countries on a 
wide range of social indicators, suggesting that the form of social 
organization used to accommodate contemporary life in the United States 
has gone profoundly amiss. Some commentators dismiss the miserable social 
outcomes achieved by the American social contract by noting that it is 
nevertheless one of the wealthiest countries in the world. GDP per capita 
is higher in the United States than in most other industrialized 
countries. The results of this study, however, suggest a trade-off does 
not have to be made between material prosperity and social equity. In 
addition, there are countless problems with using GDP per capita as a 
measure of economic well-being. It takes no account of how the wealth that 
is produced in a country is distributed. For example, even though the 
United States experienced strong economic growth in recent years, between 
1998 and 2004 the income of the typical (median) American family fell by 
3.8%. Moreover, per capita GDP is high in the United States primarily 
because Americans work many hours more than citizens of other countries. 
Low-income Americans often have to work at two or three jobs just to 
survive.

Recent economic growth in the United States has also come at high 
long-term economic costs. The federal government budget is on an 
unsustainable path: the U.S. has the largest deficit in relation to its 
GDP of any industrialized nation; its trade deficit is the largest in the 
world, a staggering $805 billion last year; and, the U.S. also has one of 
the lowest savings rates of the industrialized countries. Moreover, even 
with its wealth, flexible economy and low taxes, the United States is not 
the most competitive country in the world. From 2001 to 2005, in its 
comprehensive survey of world economies, the business-dominated private 
World Economic Forum has determined that the most competitive country in 
the world was Finland. In 2005-06, Finland was ranked as the second most 
competitive country after Switzerland.