Higher taxes lead to more jobs

Make it harder for people to retain a job, and fewer people will. Adequate pay that makes a job worthwhile is one factor, but frequently overlooked are support structures that facilitate employment.

Contrary to orthodox economic ideology, punishing people does not increase employment.

Countries that provide more subsidies toward services that are complementary to work — such as child care, elder care and transportation — have higher workforce participation rates. This shouldn’t be surprising as we don’t leave the rest of our lives behind when we go to our jobs, however much bosses insist we should. Such a finding can only be controversial in a world dominated by ideologies that insist that conditions be made as harsh as possible to “force” people to work.

Alas, such a world is the one most of us live in, particularly in the English-speaking advanced capitalist countries. I have often noticed that the thinking of middle-class conservatives often boils down to “I had to suffer, so everybody else should have to suffer.” I’ve heard words to this effect from many conservatives. Although people who have enunciated that to me often are people who did indeed work hard to rise from modest circumstances, the reductionist hyper-individualism it reflects is blind to the social solidarity necessary for society to function.

Moving up the vertical scale represents higher rates of employment; moving left on the scale represents higher effective tax rates. (Graphic by Henrik Jacobsen Kleven)

Moving up the vertical scale represents higher rates of employment; moving left on the scale represents higher effective tax rates. (Graphic by Henrik Jacobsen Kleven)

More subsidies lead to a higher percentage of working-age people holding regular employment, and these subsidies are possible through higher taxation. Contrary to orthodox economics, higher rates of taxation lead to more employment. This is the conclusion of a study by Henrik Jacobsen Kleven, “How Can Scandinavians Tax So Much?” Professor Kleven, a professor at the London School of Economics, compared Denmark, Norway and Sweden with other OECD (Organisation for Economic Co-operation and Development) countries (a club of the world’s advanced capitalist and some of the largest developing countries) and found strong correlations between taxation rates and workforce participation.

More social services, more employment

Plotted on a graph, there is a steady progression of countries with higher “participation tax rates” having greater percentages of their population employed. This pattern, not surprisingly, is even stronger for women than men. The author defines a country’s “participation tax rate” as the average effective tax rate when including all income and consumption taxes, and public benefits. This rate is far higher in Denmark, Norway and Sweden than it is in, inter alia, the United States, Japan or Britain. Professor Kleven writes:

“[T]he Scandinavian countries spend relatively large amounts on means-tested transfer programs that create implicit taxes on working and therefore reinforce the distortions coming from the tax system. On the other hand, these countries also spend relatively large amounts on the public provision and subsidization of goods that are complementary to working, including child care, elderly care, and transportation. Such policies represent subsidies to the costs of market work, which encourage labor supply and make taxes less distortionary. Furthermore, Scandinavian countries spend heavily on education, which is complementary to long-run labor supply.” [page 7, citations omitted]

Denmark, Norway and Sweden also have unusually low rates of tax avoidance. Professor Kleven writes that systematic third-party reporting is “crucial” to minimizing tax avoidance. (If your income is reported, it is very difficult to avoid paying taxes on it.) The three countries also have a broad tax base and Denmark in particular allows very few deductions and exceptions.

The United States, in contrast, has a complicated tax system riddled with loopholes. U.S. tax policy for low-income workers centers on the Earned Income Tax Credit (EITC), yet the Scandinavian countries have higher rates of workplace participation without such tax deductions. Because child care subsidies act as a subsidy to labor participation, Professor Kleven argues, those countries have no need for a U.S.-style income tax credit.

Although the author recoils somewhat from his own conclusions at the end of his paper, he does earlier write:

“[E]empirical and theoretical arguments above suggest that public spending on work complements such as child care, preschool, and elder care allows for a more efficient provision of low-income support and at the same time weakens the argument for low participation tax rates at the bottom of the distribution through an EITC. In this sense, it is conceivable that Scandinavian countries (with their large subsidies to work complements and no EITC) got it right, while the US (with its small subsidies to work complements and a large EITC) got it wrong.”

More health care earlier, better jobs later

Perhaps imposing ever harsher conditions on working people makes for a weaker economy? It would seem that several years of punishing austerity has not exactly brought prosperity to the world. Another study daring to offer heterodox economic ideas, just released by the National Bureau of Economic Research, calculates that spending by the U.S. government on child health care through the Medicaid insurance program likely will pay for itself by the end of a recipient’s adult working career.

Providing health care ought to be a human right; it is something that should be provided as a matter of basic humanity to enable better lives. In the U.S., of course, such is not the case; health care there is a privilege reserved for those with full-time employment that provides benefits or for those who can afford it. But, in raw economic terms, Medicaid for children may be cost-free over the long term.

This study, “Medicaid as an Investment in Children: What is the Long-Term Impact on Tax Receipts?,” prepared by Amanda E. Kowalski of Yale University and two economists with the U.S. Treasury Department, David W. Brown and Ithai Z. Lurie, found that children who were Medicaid recipients as adults earn more money on average and thus pay more in taxes than those who did not receive that benefit. These cohorts were followed until age 28, but, projecting the results over a full working career, the authors estimate that the extra taxes accruing to the federal government will amount to 56 cents for every Medicaid dollar. That is virtually identical to the 57 cents that the federal government pays out of every Medicaid dollar.

Professor Kowalski, in summarizing the study, said:

“Although it will take years to know the long-term impact of current expansions of Medicaid undertaken as part of the Affordable Care Act, this study shows that the investments that the government made in Medicaid in the 1980s and 1990s are paying off in the form of higher tax payments now.”

The study did not take into account the extra tax money paid to state and local governments, nor benefits from decreases in mortality and increases in college attendance. If all factors could be calculated over a lifetime, it is conceivable that Medicaid for children will actually be a direct financial benefit. Such a crass calculation shouldn’t be necessary, but the U.S. health care system exists to provide corporate profits rather than provide health care, which is why U.S. spends much more on health care than other countries while achieving inferior results.

A society that provides the infrastructure for a productive, balanced life, as opposed to one that imposes grim struggles to survive, is a healthy society. We are, after all, a social species, something that the ever more propagandized individualist ideology of capitalism seeks to erase.

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26 comments on “Higher taxes lead to more jobs

  1. Richard W. Posner says:

    Even if we were to put a “perfect monetary system and economy in place – one the was fair to everyone, efficient and egalitarian – it would do little or nothing to stop the collapse of “civilisation“. In fact, making everyone a bit more affluent would probably hasten it.

    Just my opinion

    • I tend to agree with Richard. The November UN Climate Change Conference in Paris will be our last chance to limit global warming to 2 degree C and prevent irreversible runaway climate change.

      • I’m not sure it is possible anymore to limit global warming to 2 degrees C. If it is still possible, you are right that we are at the very limit of time remaining. But I believe the only chance humanity has of having a decent future is a radical re-structuring of the economy to one of conservation and production for real needs, and that is impossible under the current capitalist system.

        • Richard W. Posner says:

          I agree with your conclusion that the 2 degree tipping point has come and gone.

          As far as “restructuring” the economy…again you’re correct; it’s impossible under capitalism.

          But that really doesn’t matter. No amount of “restructuring will stop the collapse of civilisation. Civilisation, as we know it, is unsustainable. Once begun it is inherently expansionistic. Growth is intrinsic to it. In this regard it is not unlike a cancer.

          A cancer isn’t cured by tinkering with its symptoms. Nor can “civilisation” be cured by tinkering with any of its components. We must deindustrialise and uncivilise. If we don’t do so voluntarily, it will be done for us by the forces of Nature. The longer it takes for civilisation to collapse or the longer we wait to dismantle it ourselves, the worse it will be for anything that survives through and after the fall.

          Just my opinion

          • Where I would disagree, with caveats, is that any civilization is destined to collapse. In the very long run, that is true. In the case of any civilization based on expansion, it will collapse sooner rather than later; history has given us all the examples we could want.

            Why I am quibbling here is that civilization does not have to be expansionary, although it is true that they generally have been and today’s are dangerously so. A steady-state economy, one that provides for human need with full integration into the environment rather than one based on profit, can be sustainable; it can even shrink with a declining population without the pain an expansionary system inflicts in the absence of growth.

            All previous civilizations have been based on a small elite class confiscating the surplus created by the many, and the desire for that elite to grab more (and the resulting shortages for many) is one critical factor in expansionary tendencies. A society that does not produce surplus, that simply produces what is necessary, has no need for expansion.

            Such a hypothetical civilization would consume far less than today’s and massively re-use what has already been manufactured. In today’s world, “recycle” is the one “R” that is popular because it is easy. The other two Rs, “reduce” and “re-use,” are far more difficult. But without reduce and re-use, practiced on a systematic scale, there indeed is no reform or tinkering that can stop an eventual collapse.

            Advanced capitalism is incapable of doing what is necessary; it is a cancer that is destined to collapse and bring untold suffering if we don’t dismantle it ourselves first. On that crucial point, I am in full agreement.

            • Richard W. Posner says:

              I will happily concede that your “hypothetical civilisationmight be possible if you’ll grant me a single condition: Every last vestige of psychopathy must eliminated from the human condition or, at the very least, brought under complete, absolute and inescapable control.

              You touched upon the root of the problem with “a small elite class confiscating the surplus created by the many, and the desire for that elite to grab more“. These people are more than just a small group of greedy individuals. At their apex are always a group of essential psychopaths. Unless their type can be weeded out and brought under absolute control, NO sustainable civilisation with ANY population center of more than an absolute maximum of 150 members (and I think that’s too many), will be possible.

              Just my opinion

              PSYCHOPATHY: THE CAUSE OF EVIL
              Inherited and acquired psychological disorders and ignorance of their existence and nature are the primal causes of evil. The magic number of 6% seems to represent the number of humans who either carry the genes responsible for biological evil or who acquire such disorders in the course of their lifetime. This small percent is responsible for the vast majority of human misery and crime, and for infecting others with their flawed view of the world.”

              • Human beings contains a full range of characteristics; these are unevenly distributed. I don’t see any way to eliminate the negative human traits you describe, so I would frame it this way: Humanity (and the rest of the world) need institutions, systems and structures that reward cooperative, social behavior instead of those that reward greed and the willingness to screw other people over to get ahead.

                All systems of inequality (and that’s been pretty much all of them to date) take root where the negative consequences of individualism, acquisitiveness and greed are rewarded and amplified. This is the case for capitalism. In a social system based on cooperation, positive characteristics that assist cooperation would be rewarded. Those negative characteristics won’t disappear, but they won’t have a chance to be expressed. The problem hasn’t been human nature, it has been what aspects of human nature are allowed to flourish and are rewarded.

                Without a surplus to fight over, where everybody has enough to live comfortably, and we only work enough to meet our needs (which is many less hours than we currently work) and thereby have more free time to pursue our personal interests, there would be limited ability for the power-hungry to find enough followers to cause much trouble. Such people, being incapable of cooperative behavior, likely would do poorly in our hypothetical future world, so they would be lone malcontents or would be forced to learn to work with others and get along with their fair share. I suppose we’d still have a need for psychologists to treat such people.

              • Richard W. Posner says:

                Humanity (and the rest of the world) need institutions, systems and structures…

                These are hierarchies and that’s what we have. That’s what gives essential psychopaths the opportunity to transform themselves from a highly visible Kunlangeta that can be easily eliminated to the highest ranking “officials” of corporations, banks and ostensible governments.

                As long as psychopathy remains unchecked and as long as we rely upon “institutional hierarchies“, the pathological will always find a way to insinuate themselves into those hierarchies and manipulate their way to the top of the pyramid. “Normal” people are innately cooperative, obliging and supportive. Essential psychopaths are extremely skillful at exploiting those very characteristics to their less than benevolent purposes. They are also highly adept at hiding in plain sight and are capable of the remarkable degree of patience required to achieve their goals.

                The first of these hierarchies, which unleashed the process of ponerogenesis, was “religion” and it paved the way for agriculture, which was the first industry and gave birth to “civilisation“.

                The pathological have persisted throughout the millennia and so have their hierarchies and civilisations; all of them evil and Mortiferous in the extreme.

                So, while I admire and appreciate your intelligent, rational and very civil response and would dearly Love to see your “hypothetical civilisation” become reality, since you can’t grant my single condition, I’m afraid I can’t agree with your scenario for your “hypothetical future world. Therefore, on this particular point, we’ll have to agree to disagree. I’m sure we can both do so without rancour. After all, it’s incumbent upon neither of us to “convert” the other.

                Human beings will be happier – not when they cure cancer or get to Mars or eliminate racial prejudice or flush Lake Erie but when they find ways to inhabit primitive communities again. That’s my utopia“.
                Kurt Vonnegut

      • Richard W. Posner says:

        Thanks stuart. I do have to say that I think we’ve already passed that tipping point. Beyond that, we’re doing everything but slowing down our consumption and fossil fuel use.

  2. In order to understand the mentality of the Western nations and economics, it is necessary to understand the underpinnings of Capitalism. Prior to the tumult of the Protestant Reformation, a Capitalist form of economics and the usury that goes with it were almost unheard of in Catholic Europe. Indeed, most people don’t know that the Church banned the charging of usury on loans.

    The change came about with the birth of Calvinism, which is a very highly individualized idea of God and man. Calvinism posits the false idea that certain human beings are loved and special to God, or “elect” and the rest are so much dung and refuse. The economic idea which came out of this is that proof of being elect is that God blesses one with riches. Wealth is a sign of being in that special “elect” relationship. Therefore, anything that A.) makes a man wealthier than his fellow men is to be lauded and approved of B.) keeps the “elect” separate from the “riff-raff” (i.e. poor) is also a good thing.

    An economic system therefore that treats all men as equals is not a system which fits this paradigm.

    Capitalism is eventually going to die. It is a failing system which results in all the abuses of humanity which we see current in the world today: poverty, disparity of incomes, wars for profit, healthcare sold to the highest bidder, etc.

    • Capitalism’s myth makers claimed that capital accumulation originated in Protestant frugality. The sociologist Max Weber exemplified that belief in his 1905 work The Protestant Ethic and the Spirit of Capitalism, in which he argued that the asceticism of Calvinism, Puritanism and other Protestant sects, and the individual links these religions posit between believers and God, as opposed to the centralizing medium of the Roman Catholic Church, produced a work ethic that induced people to develop enterprises and accumulate wealth.

      Nonsense, of course, but self-serving nonsense. But all myths have their limits. I have no doubt this will be the final century of capitalism. Either humanity will rise up and replace it with something better, or the massive contradictions that continue to build — pollution, resource exhaustion, the mad scramble to expand beyond any rationality, the finite limits of Earth – will force it upon us. I do hope it will be the former, because the latter will be vastly harder on us.

      • Hi!

        What part of what I posted are you referring to as nonsense? Just curious.

        Are you familiar with the Distributist economic model, based on private ownership of small businesses, worker-owned larger business co-operatives, and guilds? I have to think that this would be much more the way to go than the model we see now in the West, with the special emphasis on mega-corporations and privately owned mega-businesses.

        It also seems to me that a properly run world would cease to encourage the use of fossil fuels to ship foodstuffs and products around the globe if those products can be grown in the local climate. For instance, to what purpose does it serve to ship Florida Valencia Oranges to California, where they can grow their own oranges? Seems a polluting waste of resources to me.

        I have read some of the editorials on Capitalism and the idea that we absolutely MUST see growth every year to be considered to be a successful business venture. Seems to me that a business or piece of property that feeds those who own it is far more successful than something that is just growing for the sake of growing.

        That’s what cancer does, right?

        • Richard W. Posner says:

          I think he was calling what Max Weber said as “self-serving nonsense“.

          And yes, that’s what a cancer does. However, capitalism is but a symptom of the cancer. The actual disease, the cancer itself, is called “civilisation“.

          Just my opinion

          “Human beings will be happier – not when they cure cancer or get to Mars or eliminate racial prejudice or flush Lake Erie but when they find ways to inhabit primitive communities again. That’s my utopia”.
          Kurt Vonnegut

        • Yes, Richard is correct. I was referring to the mythologies of capitalism in general and to Max Weber’s thesis in particular as “self-serving nonsense.” An entire strain of mythologizing has developed from Weber’s, it must be admitted, very influential writings. You, Edward, made quite a lot of sense in your comment.

          I am not familiar specifically with the Distributist economic model, but I will definitely do some research on it. Thanks for the tip! I do see worker-owned and -managed cooperatives as the basic model for a post-capitalist world. I have said it many times and will again: There is no democracy without economic democracy.

          • Here’s a great place to start. ]\\

            http://www.medaille.com/distributivism.htm

            Also here…..

            http://distributism.blogspot.com/

            Also look for Facebook posts by John Medaille. He’s a great writer (You can tell a great Catholic writer when he pisses off Catholic Conservatives who support Capitalism)

            As for the making of sense, I am just passing on Distributist views. I’m really not all that smart.

            And in re the Calvinist point….I was a Calvinist for 13 years before converting to the Catholic faith. I know what they think like, and believe me, Weber wasn’t that far off on one thing: they have a real need to prove to themselves that they are “among the elect of God.”

            Making wads of money (aka “reaping God’s blessings”) is a real way they could prove to themselves that the smile of God was upon them.

            Thanks for the response!

      • BTW — I had a rather interesting (and quite sad, actually) conversation with a chap who is Catholic. He made fun of climate change, to which I replied, “Look, I’m no scientist, but it just seems to me that we can’t continue putting thousands of tons of chemicals into a closed system every year without making that system get out of whack.”

        To which his reply was “Well, I happen to believe that God is in control and God is bigger than what we can do.”

        And my retort, which pretty much shut him up, was “Yes, God is in control. Does that mean that I deliberately eat things that are known to cause cancer because God is “in control?”

        Some people…..sheeeesh! Wonder if he knows that we are called to be stewards of the blessings of the earth we have been given — not rapists!

  3. Tori Kovach says:

    The comparison of humans to a cancer has been made before in an article by A. Kent MacDougall titled, Humans as Cancer.

    http://www.churchofeuthanasia.org/e-sermons/humcan.html

    • Humans are not a cancer. It is HUMAN BEHAVIOR that is cancerous and is doing all the problems. Change the behavior, the cancer will heal.

      • Tori Kovach says:

        Behavior? Indeed, stop humans from copulating out of control and your theory might prove itself.

        • There is such a thing as birth control …

        • Mythology. Human beings are not “copulating out of control.” You need to check the “replacement birth charts” to see what is needed for each generation to support the previous one. I believe, if my old memory serves me, that it is 2.6 children average per family in a population. Dipping under 2.0 children is a recipe for future economic and sociological disaster, one which will no doubt be mitigated by killing off the old folks rather than caring for them.

          Yes, behavior. Such as learning that there are other people in the world other than “ME” and that the world doesn’t just exist for “ME.” And believe it or not, there are some in the Christian faith who do actually think that way and see the world in that manner. We are not here to aggrandize ourselves at the expense of others. We are here to serve and love others.

    • If A. Kent MacDougall is serious about this, I will loan him my Glock .9mm and let him lead the way.

      I have a feeling that his view of killing off human beings is good for everyone else BUT him!

  4. carolahand says:

    Fascinating post that catalyzed an equally engaging erudite dialogue!

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