Is America Already Europe in Spending, Debt and Progressive and High Taxation?

publication date: Jul 9, 2012

The Wall Street Journal premium edition had an editorial by Arthur Brooks entitled, "America Already Is Europe: In spending, debt and progressivity of taxes, the U.S. is as much a social-welfare state as Spain." Some readers asked me to comment on this.

While clearly a fiscal conservative, Brooks (photo below) takes on both political sides in his piece. He is the president of the American Enterprise Institute and the author of the book, "The Road to Freedom: How to Win the Fight for Free Enterprise" (Basic Books, 2012).


Here are the highlights of Brook's article followed by my thoughts:

I'm often asked if I think America is trending toward becoming a European-style social democracy. My answer is: "No, because we already are a European-style social democracy." 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.

In 1938-the year my organization, the American Enterprise Institute, was founded-total government spending at all levels was about 15% of GDP. By 2010 it was 36%. The political right can crow all it wants about how America is a "conservative country," unlike, say, Spain-a country governed by the Spanish Socialist Workers Party for most of the past 30 years. But at 36%, U.S. government spending relative to GDP is very close to Spain's. And our debt-to-GDP ratio is 103%; Spain's is 68%.

At first blush, these facts seem astounding. After all, Spanish political attitudes differ dramatically from our own. How can we be slouching down the same debt-potholed, social-democratic road as Spain? There are three explanations, all of which point to a worrying future for America.

First, the American left is every bit as focused on growing government and equalizing incomes as the Spanish left. Despite arguments from liberals that tax increases on "millionaires and billionaires" are necessary for fiscal prudence, they are little more than a way to meet the single-minded objective of greater income equality.

President Obama's proposal to eliminate the Bush-era tax cuts for households making over $250,000 a year would, on a static basis, reduce the deficit by only 5% annually. That still leaves 95% of the deficit to be paid by the middle class.

Similarly, the so-called Buffett Rule, which would apply a minimum income tax rate of 30% on individuals making more than $1 million a year, is supposed to help bring our budget into line but would raise annually about $4 billion-about as much as Americans spend on Halloween and Easter candy.

The second force leading us down the social-democratic road is cronyism. America possesses a full-time bipartisan political apparatus dedicated to government growth and special deals for favored individuals and sectors. For example, the farm bill that just passed the Senate contains around $100 billion in subsidies, mostly for large, corporate farms that do nothing to improve nutrition or food security. Or witness the recently reauthorized Export-Import Bank, which doles out about $20 billion annually in corporate welfare.

Third, and most importantly, while a majority of Americans are neither leftists nor corporate cronies, they aren't paying much attention to the political system. We often hear that more than 85% of Americans disapprove of the job Congress is doing. But, according to the 2000 Social Capital Community Benchmark Survey, only 25% of American adults can correctly name both of their U.S. senators, and 51% can name neither. If I don't know who my senator is, I am unlikely to know much about his bridge to nowhere.

...As the leader of a think tank dedicated to public policy, I would love it if Americans were as obsessed with policy as I am. But let's be realistic: Most people don't have the time or inclination to contemplate the potential damage each government-spending predation-each tiny political sellout of our values-could cause.

Still, according to a recent Gallup survey, 81% of Americans are dissatisfied with the way the nation is being governed. Since Gallup started asking that question in the early 1970s, dissatisfaction has never been higher.

And Rasmussen polls find that consistently two-thirds to three-quarters of Americans say our country is on the "wrong track." They may not know exactly why, but most Americans believe their government is changing our nation for the worse.

What is the answer? We caught a glimpse of it in 2010, when a movement of ethical populism-the tea party-mobilized millions of Americans to read the United States Constitution and demand politics that reflect the majority's values. And while woefully misguided in its diagnoses and policy solutions, the Occupy Wall Street movement was at least right to protest the malignant cronyism in our economy. That energy must re-emerge in 2012 and become a permanent part of our political landscape.

In 1787, Benjamin Franklin was asked what sort of government our new nation would have. His famous answer was, "A Republic, if you can keep it." When he said this he was envisioning a monarchist alternative, not today's noxious brew of leftism, cronyism and general inattention to public policy. But Franklin's maxim is still valid today.


My Thoughts

Brooks makes numerous valid points about government spending. But, I believe that the facts suggest otherwise that the U.S. is already the social welfare state that characterizes Europe. Perhaps Brook is exaggerating to make a point (and wake folks up) that we're headed in that direction and may get there faster than many folks realize.   

The U.S. doesn't have the levels of government spending and social programs that are common in the EU countries. We don't have a value added tax, for example, although some politicians would like to add one in the U.S.  

My coverage of the Heritage Economic Freedom Index rankings backs up my assessment that while the U.S. has fallen some in those rankings in recent years in terms of economic freedom and government spending and regulation, most European countries are far below the U.S. in those rankings. But, the fact remains we are heading in the wrong direction and are no longer in the top category.


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Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.