In my book Remaking America: Welcome to the Dark Side of the Welfare State I explain how a welfare state reaches a point-of-no-return when government taxes and redistributes about 40 percent of GDP. Beyond that point, the taxes will discourage productive economic activity and thereby continuously erode the tax base. This forces the nation’s elected officials to make a critical choice: either they defend the welfare state by constantly trying to draw more blood from a stone, or they admit that the welfare state is not working, dismantle it and give people back control over their own lives.
In countries like Sweden and Germany the choice has been to try and maintain an unsustainably large welfare state. These countries have seen a slow but steady prosperity decline over the past 25 years. We are now at a point where we can witness an emerging trend of fiscal collapse of welfare states in Europe, and the reason is obvious: politicians in Greece, Italy and Spain made the choice to try and keep the welfare state gravy train running on empty for as long as they could. With the devastating results that have followed – political turmoil, radicalization of politics, social unrest and genuine economic instability – other European politicians are beginning to panic.
You would expect this panic to lead them to start dismantling their unsustainable welfare states. As a very first step in the right direction, you would expect that all hands would be on deck to plug every hole in the leaking welfare state, to contain at least some costs by going after fraudsters who falsely claim billions of euros from Europe’s welfare states every year. Dan Mitchell, senior fellow with the Cato Institute, expresses precisely these sentiments in a blog about the French government’s new clamp-down on “welfare fraud”. But the hopes that fiscal sanity would have made inroads in Paris were, Mitchell says…
dashed on the rocks of reality when I discovered that “welfare fraud” in France occurs when taxpayers don’t pay enough, not when able-bodied people have their snouts in the public trough.
In other words, instead of plugging the holes that are sinking the Titanic of welfare states, the French government is going to whip the passengers for not bucketing the water out of the ship fast enough.
Because I grew up in Sweden and have witnessed the decline of the welfare state first hand, I am relieved to be on this side of the Atlantic. However, as Michael Tanner, also a Cato senior fellow, expains in the National Review Online, our politicians may not be much smarter than their French peers. Tanner fears that Republicans on the Congressional super-committee are about to cave in and agree to raise taxes to save the American welfare state:
Last week, supercommittee Republicans offered a $1.2 trillion debt-reduction proposal that would include roughly $300 billion in new tax revenues. Most of the new revenue would come from closing some of the tax code’s more notorious loopholes and by phasing out tax deductions for high-income earners. At the same time, the top marginal tax rate would be reduced to 28 percent, with commensurate reductions for other brackets. Democrats, not surprisingly, pocketed the Republican offer and asked for more. They happily agreed to eliminate tax breaks, but refused to budge on tax rates. … Republicans have been here before. Remember George H. W. Bush’s famous budget deal in 1990? Forsaking “read my lips,” Bush agreed to a “balanced” deal that supposedly included $2 in spending cuts for every $1 in tax increases. The result: taxes went up — and so did spending. … If Republicans want to see another example of what a so-called balanced approach looks like in practice, they need look no further than the “austerity” measures being imposed in Europe. Nearly all these measures rely on such a balanced approach, combining tax hikes and benefit cuts.
In other words, the default solution in Congress is still to try to save the American welfare state with higher taxes.
How far are we from the point where our politicians start calling people “welfare fraudsters” for not surrendering even more of their hard-earned money to government?
We don’t know the answer to that question, not yet. But we do know that when politicians turn to Orwell for rhetorical help, authoritarianism has replaced freedom and democracy as a nation’s governing principle. Government at all cost, plain and simple.