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.
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?