Pethokoukis, Economics, U.S. Economy

Here’s how big the left wants to grow government, exactly. And here’s how much it will cost, exactly

Lane Kenworthy

Lane Kenworthy

Love or hate Paul Ryan’s budget plans, at least they present a long-term vision for America and put a price tag on it. President Obama, on the other hand, likes to stick safely within the 10-year budget window. Based on his budgets, you would almost think the progressive project is pretty much complete other than raising the minimum wage, building some high-speed rail lines, and closing some tax loopholes.

Actually, left-of-center thinkers have some pretty big plans in store for America — even if like-minded politicians are reluctant to talk about them. But acclaimed University of Arizona sociologist Lane Kenworthy outlines one version of the progressive path to prosperity in his ambitious and must-read new book, Social Democratic America. Admitting that the “new hypercompetitive, risk-filled  economy” is here to stay, here is how Kenworthy would “safeguard against risk and enhance fairness”:

1. Universal health insurance

2. One-year paid parental leave

3. Universal early education

4. Increase in the Child Tax Credit

5. Sickness insurance

6. Eased eligibility criteria for unemployment insurance

7. Wage insurance

8. Supplemental defined -contribution pension plans with automatic enrollment

9. Extensive, personalized job-search and (re)training support

10. Government as employer of last resort

11. Minimum wage increased modestly and indexed to prices

12. EITC extended farther up the income ladder and indexed to average compensation or GDP per capita

13. Social assistance with a higher benefit level and more support for employment

14. Reduced incarceration of low-level drug offenders

15. Affirmative action shifted to focus on family background rather than race

Now some of these, broadly, are good ideas — including increasing the child tax credit and creating wage subsidies — though I would probably design and implement them differently from Kenworthy. I certainly sense Kenworthy is not a big fan of means testing, for instance. (Please keep in mind I have so far only read the first chapter, which is online).

But let’s focus on cost here. Kenworthy reckons his bold agenda would cost about 10% of GDP, which based on today’s economy is around $1.6 trillion a year. Can we afford that? Kenworthy, not surprisingly, thinks we can. He points out that in 2007, the peak year of the pre-crash business cycle, total US government expenditures — national, state, and local — totaled 37% of GDP. The Kenworthy plan would take that number to 47% of GDP. And as he points out, in most other advanced economies total government spending is well above 40% of GDP, with some, such as France and Sweden, above 50%. (See above chart.)

Kenworthy: “How can we pay for it? As a technical matter, revising our tax system to raise an additional 10 percent of GDP in government revenue is simple. Adding a national consumption tax could get and adjustments would take us the rest of the way.”

Three thoughts here:

1. Even without Kenworthy’s agenda, the aging of the US population will push up government spending and taxes. Over the past 40 years, the federal government has spent 20.4% of GDP, and raised revenue equal to 17.4% of GDP. It is certainly plausible that spending and taxes will need to rise 3-5 percentage point above that historical level anyway. And Kenworthy would add a considerable amount of spending and taxes on top of that.

2. Current total US government spending is roughly 39% of GDP, about 10 percentage points small than the euro zone. But as the folks at e21 have argued, employer-sponsored health insurance premiums in the US should should be added to that total just as euro zone health insurance premiums are. Although the latter is financed directly through taxation, the net effect of both is to leave after-tax income lower to pay for health insurance. So that’s about 6% of GDP. Others would also count as spending by another name the $1 trillion annually in federal tax expenditures. (Northwestern University’s Monica Prasad calls the US housing subsidies a kind of “mortgage Keynesianism.”) That’s another 6% of GDP.

e21

e21

3. So a plausible case can be made the US already has as big or bigger government than Europe. As AEI President Arthur Brooks has put it, “From the progressivity of our tax code, to the percentage of GDP devoted to government, to the extent of the regulatory burden on business, most of Europe’s got nothing on us.” While Kenworthy may be right that larger, richer, more urbanized societies demand more government services and social insurance, does America really want as much government spending and taxation as Kenworthy thinks it does?

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

27 thoughts on “Here’s how big the left wants to grow government, exactly. And here’s how much it will cost, exactly

  1. There is a way to reverse this trend: Fairtax.org
    When spending becomes a taxable event for the upper quintile instead of a deductible event and earning becomes an untaxed process, the mindset of US citizens will change.

    • I don’t get your logic. Upper
      “quintile” (did you mean quartile, or quantile?) already pays most of the taxes. In fact I believe the upper 10% pay 50% of taxes. Lower 50% actually get negative taxes.

      Having the rich, who are already punished for spending, punished for spending, and somehow that will save us all is bizarre at best. There are better reasons to have the fair tax.

  2. Liberals think like children. They want things. They have no idea what they cost. They assume that Daddy will supply whatever it does cost (hasn’t he always?). They dismiss tradeoffs and see those who recognize them as scolds (if you don’t do your homework every night your chances of getting into college diminish).

    • I agree except on #s 14 and 15:

      14: Legalize all drugs, since it never works to protect people against their own foolishness. But come down like a sh*thammer on people who drive under the influence and on people who supply drugs to minors.

      15: This would be an improvement on affirmative action as it is now; better would be to eliminate affirmative action (at least in public organizations — private organizations should be free to do what they want).

      • You can make a case for those, agreed.

        The ones above it are so destructive, they won’t matter in any paradigm. If the rest come to pass, and much of them already has, the game is over.

      • I would remove affirmative action all together, but if it is foisted on me, 15 is a bit better. 14 might work out, but I think the costs of having extra druggies in society will mask any savings.

        In addition to the above would add 4 to the good list. Encouraging more children over the long term is necessary to keep society going, and to make all these payments to to old folk, who are sitting around unproductively. Human capital is our ultimate resource, and if we don’t regenerate it fast enough, decline is guaranteed.

  3. So #1 is in process. What’s the next newly minted human right we can expect the Left to start pushing when the time is right?

    Oppose any of this crap and you’ll be labeled heartless, an anarchist, a teabagger nutjob, and certainly a racist.

  4. The e21 U.S. bar chart is clearly in error. Total federal, state and local outlays are ~33% of GDP.

    There is no plausible case that the U.S. has a big or bigger government than Europe.

    FRED graph

    Is there no private health insurance in the EURO area? Clearly another error.

  5. It is – in most progressives minds – about fairness. And to be specific – fairness of condition. Regardless of circumstances, choices, good or poor decisions – a good progressive believes all people are equally entiteld to the wealth of a society. What offends them is that “society” doesn’t own wealth – people do.

    Progressives think of society as a whole, a single entity with possessions. Conservatives see society as a collection of individuals with some common needs.
    Communists want everybody to all have the equivalent standard of living – regardless of the imposed squalor

    Progressives want all members of society to have some undefined “decent standard of living” regardless of choices or circumstance.

    Conservatives believe that there should be a safety net but not a cradle to grave welfare system.

    Libertarians believe it’s every man for himself.

    In a progressive mind is all about fairness – but only from the perspective of the less fortunate. There is no concept of fairness by success – only fairness of situation.

    Until this gets put on the table and America finally agrees to the duty and responsibility the government has per the “individual” can we actually discuss this rationally. right now both sides are simply saying – my way or no way.

  6. It’s not just the Dollar cost we have to consider, it’s the social cost as well. So far, the left’s great ideas have been spectacularly disastrous in the social realm as well as fiscally unsustainable. In a nutshell, they would have us all well fed and cared for zoo animals, each in it’s own gilded cage.

  7. The Founding Fathers are spinning in their graves. The plan for socialism is the death of freedom and prosperity, which are being greatly impinged already.

  8. Haven’t read “acclaimed sociologist” Lane Kenworthy’s glorified laundry list with footnotes, but, were he in front of me, I’d quickly tell him what would screw up his carefully-laid plans quicker than anything else:

    Events, my dear boy, events.

    Think war with China, North Korea, and Iran to name one “event.” That’s the fatal weakness of progs: they can’t or won’t understand that s*** happens whether they like it or not.

  9. We like to pretend we are different from the socialist Euro Weenies, but we are NOT. Mark Steyn illustrates this point well. If we stayed the course with the constitutional republic our founders gave us, we would OWN the world in economic competition. Instead, we are just another “social democratic” country, with a marginally better work ethic. That is reality.

  10. Federal spending as a percent of GDP is an important metric. But also worth considering is the impact of regulations on businesses. The best example of this would be Obamacare (although not the only example).

    So government-mandated spending is higher than what the figure above suggests.

    • Huh, isn’t Europe regulated even more than the U.S?

      The bottom line is that Kenworthy’s shopping list (10% of GDP) would equalize the Euro zone and the U.S. only because U.S. public and private health care expenditures are so far off the charts.

      • Depends on where you look, smarmy.

        In isolated areas, the US is actually more regulated, which is why things like clean diesel were developed in Europe – they have less stringent diesel emissions standards than we, allowing for the development of that technology.

        Also, your healthcare chart/point is irrelevant. We spend more because we can, though much of it is government-driven and artificially inflated.

        Our expenditures will most definitely come into line after the system is destroyed

        http://www.telegraph.co.uk/health/healthnews/10099856/Hospitals-need-to-be-closed-to-save-NHS-doctors-warn.html

        so that’s not necessarily the metric you want to add here.

        • Also, your healthcare chart/point is irrelevant. We spend more because we can, though much of it is government-driven and artificially inflated.

          No, you are wrong. The point of the chart is the “excess” health care spending relative to income. No one argues that a high income income country will spend more per capita than a low income country.

          The U.S. excess spending on health care and the military doesn’t achieve higher cost-benefit outcomes.

          • Incorrect.

            What you deem “excess” is actually the overage (again, some of it wasteful, mostly government-driven) allowed by “free” healthcare delivery systems. Europe does not have a free system, at least compared to ours. They are resource-capped systems. They cannot go outside their public funding schemes (see above).

            Third party payer systems introduce waste, and distort/eliminate price signals and information. This is especially true when government is the third party payer, which has been our problem –

            http://www.chcf.org/publications/2013/09/data-viz-hcc-national

            Now that we are destroying our system, and effectively capping benefits and usage, our profile will look far more like Europe’s, and quality will deteriorate too.

          • @mesa, we have also doomed ourselves to a medical stasis. With the US no longer able to pay for new technology development, we are going to see less development of new drugs and less development of live saving equipment.

            Basically we are killing people in the future, by no longer supporting development of the technology to save them.

          • That’s exactly correct marque, and is part of the “excess” smarmy incorrectly labels as such.

            Medical innovation in the US is now dead (medical device tax is the dumbest idea in millennia), and thousands will die due to lack of medical discovery.

            This will only show in superficial mortality measures, but go unseen elsewhere.

            Overall quality will deteriorate, and we will effectively become Europe, with a macro price cap on what we are collectively willing to spend on healthcare, and the allocation decisions made by bureaucrats instead of patients and doctors.

            Sad.

  11. Bull. Anyone who thinks that the U.S., relative to other high income countries, has superior health outcomes (benefits) relative to excessper capita spending (costs) is delusional.

    The medical device tax is a pimple on an elephant’s back.

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