Scandiphilia and Income Inequality

Bernie Sanders channeled the id of liberalism with his deliberate shout out last night that we should “look at” Scandinavian welfare states, especially Denmark and Sweden. He probably doesn’t know that Sweden has lately made some significant cuts to its social spending programs. But why let facts get in the way of a religious narrative.

More curious is that liberals always forget to mention that their beloved European welfare states rely on much more than high incomes taxes to pay for their benefits. All of them have very high (and regressive) consumption taxes. Sweden’s value-added tax is set at 25 percent. Any liberals in America want to propose such a tax here? Didn’t think so. You can count on that being one thing we won’t “look at” as Sanders goes forward.

Worth adding that Norway pays for a lot of its welfare state through North Sea oil and gas revenues. Guess Norwegian environmentalists aren’t as politically powerful as ours, or maybe their like their welfare state goodies too much to complain. I forget the estimates, but expanded oil and gas production on public lands in American could yield something like $1.5 trillion in revenue.

Meanwhile, the Washington Post on Monday did a very nice job of reporting some simple math (which is why liberals don’t know this) to show that even much higher taxes on the top 1 percent and direct redistribution wouldn’t affect income inequality very much:

William Gale, Melissa Kearney and Peter Orszag . . . simulated what raising the top tax rate would do to inequality as measured by the Gini coefficient. It turns out that increasing the top rate to 50 percent would only reduce the Gini, where 0 is perfect equality and 1 is perfect inequality, from 0.574 to 0.571. . .

They reran the numbers and found that the top 1 percent’s share of income would only decline from 16.4 to 15.6 percent if you raised the top tax rate to 50 percent and redistributed that money to people at the bottom.

Somehow the Washington Post writer goes on to make a tortured case that this finding strengthens the case for a tax increase on the rich, but admits that to do anything serious about income inequality you’d have to raise taxes on a lot of people below the top 1 percent, and slap additional higher taxes on dividends and capital gains. But everyone who is not a liberal has long understood that calls for raising taxes on “the rich” are always a cover for raising taxes on the middle class.