July 23

A Capital Idea Part 80: Higher Taxes = Better Life

After last time, I realized that I should also look at the relation between tax rates and the economic and life satisfaction outcomes, so I have moved to the next phase of my analysis of nations.

I performed the same sort of calculations as last time, using the nations with the highest and lowest tax rates (http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP), and comparing them on Quality of Life (http://en.wikipedia.org/wiki/Quality-of-life_index), Satisfaction with Life (http://en.wikipedia.org/wiki/Satisfaction_with_Life_Index), and Per-Capita Income in 2010 according to the IMF (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita). The results were pretty stunning, especially considering that there were a few nations which threw proverbial monkey wrenches into the process. Of course, these findings do not take all nations into account, and are not correlations. Nor have I included tests of statistical significance, but they very likely show significant trends which encompass all nations.

The ten nations with the highest tax rates are: Austria, Belgium, Bosnia and Herzegovina, Denmark, Finland, Germany, Iceland, the Netherlands, Norway, Sweden, and Zimbabwe, in alphabetical order. The ten nations with the lowest tax rates are: Algeria, Haiti, Iran, Kuwait, Libya, Nigeria, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, in alphabetical order. The tax rates I used are tax revenue as percentage of GDP, which includes all taxes, and the nations with the higher tax rates are generally in the 40-50% range, while the nations with the lower tax rates are less than 10%. Several nations, including France, had to be excluded from the analysis, because they lacked data on one or more of the other variables, unfortunately. By the way, this data was collected by the conservative, Heritage Foundation, of all places, so it certainly cannot be claimed to have a liberal bias. Most of the data is from 2009. The Heritage Foundation even refers to low tax rates as "Fiscal Freedom" or "Economic Freedom."

Here is what I found:

1. Looking at Quality of Life for these 20 nations, using their rankings, I found that the average Quality of Life ranking for the high tax rate nations was 32.7, while the average ranking for the low tax rate nations was 76.1, with lower scores being better. For example, the nation ranked best in Quality of Life would be ranked number 1. Thus, nations with the highest tax rates ranked far better on Quality of Life, on the whole, compared to nations with the lowest tax rates. Note that Zimbabwe seems to be a basket case of a nation. I am not sure what is going on there, but I believe that there is major political and civil strife occuring there, but it has a very high tax rate. It ranks last of all nations in Quality of Life, at 111. Otherwise, the results would have been even more extreme. I am guessing that the high tax rates in Zimbabwe, rather than being used to enhance people's Quality of Life, are being used for military purposes, or to enrich its leaders, defeating the purpose of raising taxes;

2. In terms of Satisfaction with Life, there were similar findings, but not as extreme. The average Satisfation with Life ranking for the ten nations with the highest tax rates, was 43.2, while that for the ten nations with the lowest tax rates, was 74.2. Thus, citizens of nations with the highest tax rates rated themselves considerably more satisfied with their lives than did citizens of nations with the lowest tax rates. In this case, Zimbabwe had the second worst ranking on Satisfaction with Life, 177 out of 178 nations; otherwise, the difference between the two groups would have been considerably greater;

3. I was interested in differences in income between the two groups, as well, for several reasons. This is a complicated topic, but needs to be examined. If nations with high tax rates have higher incomes as well, it could be argued that differences in Quality of Life or Satisfaction with Life between the two groups may be due to income differences. On the other hand, it may be argued, as I suspect, that higher tax rates result in higher per capita incomes. It also may be the case that nations with higher per capita incomes tend to develop more liberal economic policies and therefore higher tax rates. Citizens in nations with better incomes may feel more capable of paying high tax rates, although that certainly doesn't seem to be the inclination of most wealthy people here in the United States. In any case, I found the following. The average Per-Capita Income ranking for the ten nations withthe highest tax rates was 40.2, with Zimbabwe bringing up the rear again in position 180. The average Per-Capita Income for the ten nations with the lowest tax rates was 64.0, meaning that these nations did tend to have poorer Per-Capita Incomes, but the difference between the two groups was less than the other two comparisons. Qatar actually had the world's best Per-Capita Income, at $88,559 per year (oil money presumably). Several other nations in the lowest tax rate group also had good Per-Capita Incomes, but eight of the ten nations in the highest tax rate group had rankings of 22nd or better on Per-Capita Income, accounting for the difference between the groups;

4. I also looked at public debt for these 20 nations (http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt), but didn't do a comparison of the groups, partly because Wikipedia listed the data as suspect, and also because there were considerable differences between two different measures of debt. (For example, the United States was listed as having only 58.9% of GDP national debt as of 2010 according to the CIA and Eurostat, but 92.7% according to the IMF.) Also, public debt probably isn't as relevant as the other variables. Governments are not meant to be profit making businesses, and nations with good economies and high tax rates have considerable ability to repay their debts. I found that Japan, which is more or less run as a democratic socialist nation, but with only moderate tax rates, has the world's highest public debt at 225% of GDP, a fact mentioned by Thom Hartmann, coincidentally, the other day. I think Japan, along with the U.S., needs to raise its tax rates. Zimbabwe came in fourth place, at 149% of GDP, giving that nation another reason for having high tax rates. Overall, the high tax rate nations ranged from 4th to 75th in terms of public debt as a percentage of GDP, not great, but not too bad. The low tax rate nations admittedly did better on this measure, ranging from 59th all the way to the most fiscally responsible nation in the world, according to conservative terminology, at 128th. Which nation was this that had the world's lowest public debt as percentage of GDP? Libya, no less, surely a model of practical, conservative economic principles worthy of emulation by Republican politicians. Libya's percentage was only 3.3%, never mind that its people are revolting against the government and now it's in the midst of a civil war. Other repressive nations with low public debts include Iran and Saudi Arabia;

5. I also attempted to compare the GINI Indices of the two groups, but found that most of the nations in the low tax rate group did not have one listed, although undoubtedly, these would be high ones indicating high economic disparities (http://en.wikipedia.org/wiki/List_of_countries_by_income_equality).

Overall, my findings provide substantial support for my thesis that progressive policies help not only a nation's economy in the long run, but also life satisfaction and quality of life. Since taxes are set by governments, hopefully with the consent of the public, these are policy decisions which affect other outcomes. Thus, a strong case for the causality of tax rates in terms of other outcomes can be made, although real life is messy and never so simple. Nonetheless, it is difficult to conceptualize the main causal path as being anything other than tax rates affecting Quality of Life and Satisfaction with Life. Over time, it probably even helps a nation's income by creating an environment in which the greatest number of people can find gainful employment which is well paid.

Lowering taxes and thinking that will help the economy, or the well-being of the public -- as conservatives argue -- is clearly moving in the wrong direction. Of course, having low tax rates also ensures that a nation such as the United States will continue to amass huge public debts, so it is a self-defeating policy for debt-hating conservatives. We desperately need to raise tax rates, especially on the upper income levels. It is also of utmost importance to use the revenues for constructive purposes, such as infrastructure building, education and research, and care of needy children (welfare) as well as mental health care, rather than to support the United States' military empire and military adventures. The importance of this conclusion cannot be overstated.

p.s. Happy Birthday to my beautiful wife, Eunice, or as I call her, You-Nice.


Robindell's picture
Robindell 8 years 12 weeks ago

Your subject matter in this and the last two posts is very important for both the U.S. and the rest of the world, so I thank you for taking the time to investigate and report on this data.

In the Japanese health care system, I have heard that doctors and hospitals are not reimbursed all that generously or even adequately for medical services. I think there is high satisfaction among the public for the most part with the country's nationalized health care system. If they had higher taxes, perhaps they could improve the incomes of Japanese doctors. In the U.S., many doctors do not accept Medicaid and/or Medicare because their reimbursement rates are considered to be too low by many. And the politicians have been talking about cutting funding for these programs, as we all know.

This issue of taxation is related to the degree of socioeconomic equality that exists in a society. It would appear that the main factor leading to increased equality is not the money paid in taxes but the services that the citizens receive in return which helps to boast their economic situation, such as your previous comments about the educational opportunites in Denmark.

If you have a chance, it would be interesting to hear about how Canada compares on taxes, quality of life, and satisfaction. If I could move there, I would. Michael Moore in at least one of his films had some very positive things to say about Canada, not just on their health care system but on the relative safety of their society and on housing for low-income people as well, if I remember.

Many a year ago, I took a social work course on child welfare, and the professor mentioned in passing that in America, the rich people manipulate the middle class into blaming the poor for not being productive members of society. The National Association of Social Workers Code of Ethics is quite interesting in that it does not say that social workers will provide mental health counseling but instead emphasizes the need, and even the requirement for social workers to act as advocates for the poor and the powerless and to work to eliminate forms of discrimination. If there is a conflict between an employer's rules and regulations and the social work code of ethics, social workers are supposed to follow their own professional code of ethics.

There seems to be a mechanism at work that teaches people to favor protecting the rich while blaming the poor in an unrealistic, simplistic, hyperbolic sort of way. The stumbling block to us becoming more like societies with higher quality of life and higher satisfaction ratings is not just a desire to have low taxes but I think an opposition to the redistribution of income that is perceived in a more vigorous government. Of course, people like Rupert Murdoch make this situation even worse than it might have been, but he and his company may be getting some negative treatment as a result of their newspaper scandal. What is needed in my view is a new organization that would do what you have been doing with your posts, but on a wider scale, and that is to provide economic education to society, especially on these kinds of topics, and to put pressure on the convential media to start doing a better job of covering areas such as the financial ties between investments and conservative politicians, corporate misdeeds, poverty, unemployment, and the harm that is caused to people as a result of having inadequate social programs. Even more importantly, however, I think our educational system all over the country needs to be reformed in the social studies area to teach children history and also something about poverty and about societies other than ours and how they handle some of these policies. My proposed organization would conduct economic and demographic research but would also seek to change our educational system to teach students not to blindly accept propaganda and to base economic ideas on well-researched empirical data, such as you have been presenting. We need to have people with the skills to be able to find and interpret this kind of information and to make use of it in their thinking.

I found a study (on the Internet) done at the University of Illinois at Chicago on people being treated for depression. The article I read was not especially clear on what the treatment consisted of, but it might have been a combination of therapy and medication. The subjects were divided into two groups: working class and non-working class, who had more education, better paying jobs, and higher social status than did the working class people. The working class patients were less likely to show improvement or recover from their depression than were the non-working class people. The article quoted a social work professor at UIC, who said that this study suggests that therapists should learn to talk their clients about problems they are having related to their jobs. She assumed that their depression was somehow related to their employment situation which determines whether someone is working class or non-working class. I have gone to therapists and personally found that they were not familiar with work-related issues or with problems associated with corporate management. One therapist, a social worker, even said that it was not part of her job to help people to find a job or to help them with problems they may be having with their jobs. The late Studs Terkel wrote a book called Working, and there are some sociologists, cultural anthropologists, and novelists who have written on the subject.

One final point is that I thought of your writings when I heard of the very tragic events in Norway of yesterday. I am not sure how Norway ranks in terms of quality of life or satisfaction, but they clearly have some dangerously disgruntled people living there. I haven't had a chance to read much on the story as I had to go to work earlier today, but I did hear on the news that the one man who was arrested was a citizen of Norway. We live in an imperfect and often troubled world, even in societies that are considered to be among the more advanced places.

I hope your father's health situation stabilizes.

nimblecivet 8 years 12 weeks ago

Zimbabwe has been sufferring from extremely high inflation. From what I recall from what I have read, which was some time ago, major agricultural producers have drastically cut back production in protest of Mugabe's insistence that land-ownership reform agreed to at the time of Zimbabwe's independence be adhered to. Bolivia has been able to proceed with similar type reforms without as much backlash as Zimbabwe is experiencing also from the IMF and international community because Bolivia is integrated into a much more effective local political/economic bloc. I'm sure Zimbabweans are suffering horribly, especially those with the temerity to support Tsvangerai, and something should be done, perhaps by the U.N. and/or African Union, but what's going on in Somalia is even worse (children being tortured and mutilated for "talking up" so to speak). All I know about what our government is doing in Somalia is that it's shooting a couple of missiles in there every once in a while.

I'm surprised data was available in all of those middle-east countries with such ostensible repressive governments. If I had the time to expand upon your excellent work I might look into how the South American countries rank on these indices, and also the African nations; or maybe create another set of categories consisting of IMF lender-nations and IMF debtor-nations (the latter tending to have been subjected to neo-conservative/neo-liberal policies: strong government to protect the interests of transnational investors, but without progressive programs).

Natural Lefty's picture
Natural Lefty 8 years 12 weeks ago

I don't have much time to respond now, but thanks for the appreciation, Robindell and Nimblecivit, and I must say, despite efforts to "scrub" Wikipedia by right wingers, its information is the gift that keeps on giving. I was going to do just one post based on their data, which became two, and now, I have realized that there is more to come, plus Nimblecivit's ideas. Conservatives can use words to lie or distort the truth, but they can't hide the facts! Just look at how I used the Heritage Foundation's own data to disprove their economic views.

Natural Lefty's picture
Natural Lefty 8 years 12 weeks ago

Robindell, I studied Japan's health care system when I wrote about the heath care debate in the U.S. Congress, and you are essentially correct. In Japan, everybody pitches in for health care, including doctors who are relatively poorly paid. Prices of health care services are preset in Japan by a government agency, which I think is a great idea, but some services result in very little income for the doctors. If their tax rate was higher, I think they could pay the doctors better or lower the costs to the consumers.

It's not just the level of taxation which determines how well the government lifts everybody's standard of living; it's what they do with the taxes. You have anticipated another one of my ideas for continuing this project, but I am not sure that adequate data exists on that subject. I was thinking of seeing if I could get lists of non-military spending of taxes by nation, since the military is the biggest waste of tax money.

Canada does fairly well on the indices I have been studying, but has not shown up in my analyses. It's GINI coefficient is 32.6 which is pretty low, it is 132nd in military spending as percent of GDP at only 1.1%, its tax revenue is 32.2% of GDP which is medium, it is 14th on Quality of Life (just behind the U.S. but I am sure many of us think it is actually ahead of the U.S.), and best of all, 10th on Satisfaction with Life.

Regarding Norway, they have been featured in these analyses extensively on the positive side. Norway actually ranks 3rd on Quality of Life, but only 19th on Satisfaction with Life, so there are some disgruntled folks there, but not very many. The guy who killed all those people is basically an anti-immigrant conservative, and the most pitiful thing is that he says he killed those people to get publicity for his manifesto (in part copied from Ted Kaczynski's), which he now will, albeit negative publicity. Norway is low on military expenditures at 1.9% of GDP (85th in the world), and has one of the world's lowest GINI coefficients at 25.8.

I didn't know that social workers have vowed to protect the poor and defenseless, but I am glad that they do and that makes sense. A good friend of mine was a social worker but quit for some reason after 13 years.

I have often thought about creating just such an organization as you suggest, if I had enough money to do that, ironically. Perhaps there is a way to accomplish this with minimal expense, however. Volunteers along with myself, could do internet research at virtually no expense and distribute it via internet, perhaps. On the other hand, I may have enough money in the future to open a brick and mortar progressive research and education type foundation, although my wife is at this time responsible for most of our earnings and has plans for helping her family and doing charity with the money.

Nimblecivit, I knew I could count on you to inform me about what is happening in Zimbabwe. You know, I did hear that before but had forgotten. I guess it's a sort of agricultural revolt going on there.

The middle eastern nations mostly were missing the GINI coefficient, but had the other data, surprisingly. It seems to me that the IMF lender nations would by definition be richer than the IMF debtor nations, which would complicate the analysis, but I think your idea is correct that the IMF would impose neo-liberal policies on the debtor nations, which would prevent their standards of living from rising very much. I did an analysis a couple of years ago on military spending and crime rates using Wikipedia data (when I first discovered how extensive Wikipedia's international comparison data is), and found that it worked best if I separated the nations by cultural regions such as latin American nations versus African, middle eastern, european, english speaking or asian nations. There would probably be some important findings if we look by cultural region, at those nations which are doing the best or the worst.

My next idea, however, is to look at nations with the best and worst quality of life, and see how tax rates have changed over the years leading to those outcomes. I am predicting that rising tax rates precede a rise in QOL, and vice versa. Thom has said similar trends have occured within the history of the U.S. and also mentioned how states which have recently raised taxes are now doing better than ones which have recently lowered taxes. This is a sort of naturalistic experiment approach, although again, I am not sure whether or not I can find the relevant data on the internet.

Again, thanks for the input, Robindell and Nimblecivit!

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