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April 14, 2004

Taxes on Wealthy Help Employment

Here is an intriguing article from The Economist, an article that compares the US taxing and welfare systems to Europe.

Some of the comparisons are expected:

According to the OECD, Sweden, Denmark and Finland devote almost a third of their GDP to social transfers. Germany and France devote about a quarter. America redirects only 14% or so of its national income in this way.
But here's the odd thing. Their tax systems are less progressive than the US, so since the rich don't pay as high a percentage of taxes, those European social transfers are less redistributive than you'd expect.

The US actually taxes capital and corporate income more than in Europe:

the American state took an average of 31% of capital income between 1991 and 1997. The corresponding figure was about 20% in Germany, Norway and Finland, and 24% in France. In 1998, rich Americans faced a marginal tax rate on dividends of over 46%.
One result of the light taxation of capital and the heavier taxation of wages in Europe is higher unemployment there.

Which brings up the counter-intuitive evaluation of the US economy. It's progressives pushing high taxes on capital and the wealthy that drive the better employment numbers historically in the US.

Posted by Nathan at April 14, 2004 08:43 AM