a brief foray into political what-ifs

Imagine, for a minute, that you don’t have to worry about saving for retirement. Imagine that you don’t have to worry about health care costs bankrupting your family, or losing benefits when you lose your job. How would that affect your life?

Bubelah and I like to gripe that consideration of these two factors cripples much of the entrepreneurial spirit of America, or at least ours. I remember when I was working in western Europe most people had a very lazy attitude about saving for the future. The social contract in most of those states provided for their health care and retirement, so the practice of amassing huge amounts of wealth was not a popular one. Mortgages were much less common, so people would rent until they had enough cash to buy a home. At least amongst my colleagues the use of credit cards was minimal and concerns about the future seemed muted (or restricted to meta-problems like the environment or peace in the Middle East).

“But wait! The taxes!! The taxes!!” the American psyche cries. I pay a lot of taxes already. If you bundle up what I pay (and even worse, will be paying) in health care costs, plus the costs of what I have to save since there’s no REAL governmental pension forthcoming, I bet 80% of my income is gone:

  • Approximately 40% goes to federal and state taxes.
  • Another 6% goes to property taxes.
  • I pay 8% of my gross monthly income to healthcare premiums.
  • Another 20-25% (at least, sometimes more) goes to “savings” – loosely including IRAs, 401(k)s, our cash savings, our brokerage accounts.

Now imagine all that is gone and you pay a flat 70% tax, but in exchange you have free healthcare regardless of age/job status/condition/etc. Imagine that you have a guaranteed retirement income of 80% of your (admittedly quite low net of taxes) salary. In exchange you have a smaller income, but no need to save for retirement or worry about a single health-related incident bankrupting your family.

You know who doesn’t want this? Consumer products corporations. Companies that make flat screen TVs, iPhones, DVDs, designer jeans and gourmet coffees. The US stock market, because all that money that’s pumped into mutual funds and locked up until you’re 59 1/2 won’t be coming to them any more. Any company that makes stuff we don’t actually need. They want you to feel like you have that extra income. They don’t want the choice to save or spend taken out of your hands. They need you to keep buying.

No politician – not Barack Obama, not Ron Paul, not Ralph Nader, not John McCain – is ever going to seriously propose fixing this system. We’ll keep putting our “savings” into the market and spending money on cheap consumer goods imported from Asia, and sneer at Europeans and their high taxes. Yipee.

(photo by ButterflySha)

13 comments

  • Hear hear! Great post!

  • Hmmm, Steve. It seems to me that most European countries with extensive social services also have very low levels of entrepreneurial activity and high rates of unemployment. I would be willing to make the argument that it is precisely the fear that you describe that drives entrepreneurial activity in the US. Reward without risk is no reward.

    That said, there may be a kernel of truth in what you argue. There are distinctly different levels of entrepreneurial activity within the US, and it’s easy to speculate that culture and geography may have something to with it. I live in New England, where losing your shirt may mean freezing in the winter. In Silicon Valley, if you lose your shirt, you can sleep outdoors year around.

  • WHERE DUTY CALLS

    Nader Gravel & Paul Kucinich

    Awake from your slumber
    4 Wise Men march with the people
    Washington DC

    Whistleblowers
    Honesty compassion intelligence guts
    Not carrots sticks coercive diplomacy

    Divided we fall
    Mike Gravel
    Dennis Kucinich
    Ron Paul
    Ralph Nader
    No bribery blackmail extortion

    Rage against the machine
    Democracy rising democracy now
    Suffer not

    CUiNDC

  • Wow… The basic theory may be ok, but there are so many pitfalls to your argument that I don’t know where to begin. Oh heck – letโ€™s list a few for fun:

    1) The ‘evil’ consumer product companies that you bash provide the very salary that is being taxed. Without consumerโ€™s spending money, companies go out of business, unemployment goes up, tax revenue goes down, and now one has computers to read your blog… very sad situation.

    2) There are many differences between Americans and Europeans beyond our social welfare systems, and therefore, changing tax systems would not equate to the same behavior in the US as in Poland, at least not in the short term (next 30 years). Besides, what would we do with the million unemployed accountants?

    3) Socialism relies on the belief that humans will put the good of society above their own personal well being. History, however, has proven that humans are primarily motivated by improving there personal situation. When we can do this while also helping society, great! However, this isn’t always possible (ex: driving a car). Bottom line… Most people don’t want to live in a society where there retirement is guaranteed to be vanilla. Sure, you won’t end up in the gutter, but you also won’t have a cabin in the woods.

    I’m off to pay my taxes… BTW, can I get whatever “CUiNDC” is smoking?

  • @Curmudgeon: I suppose then it depends on how you value entrepreneurialism, but I – for example – would be more likely to take an entrepreneurial shot if I didn’t have to worry about my health insurance, for example. There are other ways to encourage entrepreneurial activity, and high levels of taxation on WAGE income could always be offset by lower levels on self-employed income, for example – to encourage that risk. You could tinker with the tax code endlessly (which, unfortunately as we can see does not in the end always have a good result).

  • @Brian: I’m certainly not making a call for socialism, but if you lived in Western Europe – where the situation is largely as I described – they have hardly fallen apart. I don’t see European governments racking up trillions in debt like the US, or lacking for innovative techie companies. The extreme situation you propose in #1 is the reverse of the long-since discredited Laffer curve. Consumers will spend money, trust me. Some people will still yank out the plastic to buy iPhones. Everyone in Europe still has computers. Companies are doing just fine there – no $14 billion write-downs yet.

    #2: Well, of course there are a million differences, and comparing Poland (only 15 years removed from a communist dictatorship) and the US is a more extreme example than, say, comparing the UK and the US. I do think you would see a huge change in the US if we went, for example, to a single-payer healthcare system. Good or not, I don’t know, but it might prevent a lot of social ills and remove a barrier to small businesses and (as I replied to Curmudgeon) improve the economic activity at a micro level. Trust me, the accountants are going to be kept plenty busy with the tax code and small businesses and audits. We (I am one) will be here with the cockroaches after the bombs fall…

    #3: Socialism as a pure construct believes that the state is better at directing choice than the individual, and in most of the western world it’s been accepted that this is true in some areas – for example in health care or airlines, etc. The US is certainly a socialistic country in many ways already – unemployment insurance, social security, welfare, etc. My argument is that we have a socialist taxation system without the benefits of a socialist society because it’s just too much of a patchwork system that doesn’t encourage overall societal welfare. And yes, government can legislate societal welfare (point #2) – see clean air acts, or traffic laws, or beef recalls.

    Are you going to give up Social Security? That’s a vanilla system if there ever was one. Pay in, the government pays out. People don’t want to live in a society where their retirement is guaranteed to be CRAPPY vanilla. If everyone could be guaranteed adequate housing, health-care, food, care and so on in their old age in America, what person wouldn’t take that? Especially if it meant you could have it guaranteed and not have to worry about the market tanking 3 months before you cash out your 401(k)?

    But I do understand where you’re coming from. I’m ready to make the argument that the US should withdraw all support for all social programs and reduce the taxes to zero (except, again, we have to support the most expensive war in human history).

  • Steve, we do have free health care where I live (Quebec, Canada). Trust me, it’s a real pain! It may be a worst option, but there is a strong movement to create private health care services in my province as the free system is too slow.

    I recently waited 4 hours to get pumps for my cough. The clinic opened at 8AM and I was there at 8:05. If you go to the hospital, you will more likely wait 12 hours, unless you are missing a leg or you have an knife stuck in your stomach ๐Ÿ˜‰

    When everything is free, people waste the resource. Human being are too stupid to be responsible if there is no direct consequences.

    Another example is that we don’t pay much for electricity and we are not charged on water. So people are heating their house like there is no tomorrow and simply open the windows when it’s too warm. Over summer time, plenty of people wash their driveway with their water hose.

    I prefer being responsible and save for retirement than looking at people wasting all our resources. We are already wasting enough of them ๐Ÿ˜‰

  • @TFB: Thanks for the insight into the single-payer health care world. I guess I would argue (after just spending Monday evening in a doctor’s office) that four hour waits are common where I live, too – but my four-hour wait is accompanied by health care premiums that are 10% of my salary and then on top of that 20% co-pays and $25 fees just for walking in the door. Unfortunately I’ve spent time in emergency rooms several times (for myself and others) and had to wait half a day, too – once with a serious illness. So we have the same problems, they just cost thousands of dollars more.

    I don’t think that paying for it makes it any more efficient. It just means that some poorer people show up with no insurance and make health care costs more expensive for everyone else in the US. Probably the BEST system would be a blend of public and private health care – but in effect that’s what we have here in the US. Since I can afford to pay, I have to pay a huge burden for those who cannot. Preventative care is practically unknown in the US, because of the steep costs, too.

    I simply think that one way or another health care is subsidized by the middle class, so I’d at least like to see it taken out of everyone’s paycheck, rather than having someone who is irresponsible and doesn’t have health care claiming they “can’t pay” and driving up my bill.

    There are ways to change behavior besides racheting up prices. I think you’ll see people’s attitudes towards heating houses and using water change, just like people’s attitudes changed in other ways – look at smoking, for example.

  • FB – I think the wait times are pretty random. If you go to the emergency then you might wait one hour or you might wait six hours or longer – there is no way to predict.

    This is probably worth a post in itself but I really think that people in Canada don’t appreciate the health care system we have. They seem to measure the effectiveness not by the compentency of the doctors they see or how well they get stitched up but rather by the wait times. All you ever hear up here with respect to health care is complaing about wait times!

    If you have ever worked in a call centre then you know that the only way to cut down on customer wait times is to have more staff on hand for the busy times. The problem is that this results in too much staff for the non-busy times which costs more money. The other issue is the type of call/patient – some take longer than others.

    If hospitals were to guarantee short wait times they would have to hire a lot more staff which costs money – plus they would have to cut down on the service they give, so if you go in when it’s busy then you will get the 15 minute treatment regardless of what your illness/injury is.

    It’s one thing to go to the grocery store and complain about the lack of cashiers because you know they don’t make much money and it shouldn’t be too hard for the store to hire more – but when you are talking about a hospital hiring more professionals who make $200k+, it’s a different story.

    Mike

  • There’s free health care and free health care, TFB – yanks like to lump them all together, but France, the UK, Canada, and on and on all have different approaches. I’ve lived with and used socialized healthcare here in Canada, the HMO system during the years I lived in the US, and a system that has both public and private at home in Ireland. Everywhere, people complain that their system is the worst ever because they all have their issues.

    I do agree with Steve that not having my healthcare tied to my job after so many years is a huge stress reducer in a way that’s hard to describe – suddenly things like taking time off work, working part time, maternity leave and if I were entrepreneurially inclined starting a business actually seem possible. And work is just work.

  • Mike,
    I should have made myself clearer; in Quebec, over the weekend, if you get in a clinic 20 minutes after it opened in the morning, it’s too late; they will not take you. You are lucky when you wait 4 hours!

    In fact, I waited 1 hours before they call me to open my file. Then another 1h30 before I see the nurse. Then another 1h30 before I see the doctor. Why do I have to see the nurse if she tells me what I have but can’t give me the damn pumps…

    Being the father of 2 young kids, I have to go to clinics for several things. I usually come 30 minutes to 1 hour before the clinic opened and wait outside in line in order to wait 1h30 to 2hours instead.

    I’m not saying I have a solution, but this is definitely ridiculous. Just think how it’s gonna l0ok like in 10-15 years when all the babyboomers will literally stay in the hospital’s corridors and play cards for days before they see a doctor.

  • FB – that doesn’t sound very good.

    Maybe you should consider moving to Canada… ๐Ÿ™‚

    Mike

  • ๐Ÿ˜› sometimes it feels like I live in another world! ๐Ÿ˜‰