In 2008, with the rubble from Wall Street’s collapse still smoldering, pundits on both sides of the Atlantic trumpeted the death of American-style capitalism. In 2010, after the Greek debt crisis, journalists and scholars have been penning obituaries for European social democracy. Meanwhile, Republicans continue to warn that President Obama’s agenda would “Europeanize” the United States.
But what exactly does that mean? Western Europe is hardly a monolith. Taxes are low in Ireland but high in Norway, and labor markets are much more flexible in Denmark than in France. The region has innovation leaders (Switzerland, Sweden) and innovation laggards (Italy, Spain). Though allusions to “European health care” were ubiquitous during the Obamacare debate, health regimes vary significantly from country to country. All provide some type of universal insurance coverage, but the Swiss and Dutch systems are far more market-oriented than those in Britain and Scandinavia.
Across the pond, Washington has severely distorted health-care costs and incentives through tax subsidies (the employer exclusion) and government-run programs (Medicare, Medicaid). The public sector’s share of total U.S. health spending is already hovering around 50 percent. America does not guarantee universal coverage — yet — but it does not have a genuine free-market system, either. Instead, it relies on a wildly inefficient third-party-payer scheme, which has fueled rampant cost inflation. A 2008 McKinsey & Co. study found that “the United States spends $650 billion more on health care than might be expected given the country’s wealth and the experience of comparable members of the Organization for Economic Cooperation and Development (OECD).”
This is not meant to disparage American medicine — which remains a wellspring of innovative drugs and technologies — but rather to put the debate over “Europeanization” in context. The U.S. economic model emerged from unique historical, ethno-cultural, and geographical circumstances. Yet in contemporary policy debates, transatlantic differences are often exaggerated or misunderstood. Indeed, America’s vaunted commitment to free markets and limited government is less robust than is commonly believed.
That was true before Barack Obama entered the White House. Even after one controls for income inequality, a 2008 OECD study found, household taxes are more progressive in the U.S. than they are in any Western European country save Ireland. The World Bank and PricewaterhouseCoopers reckon that, through May 2009, the average total tax rate on U.S. companies was 46.3 percent, while the equivalent rates were 44.9 percent in Germany, 41.6 percent in Norway, 39.3 percent in the Netherlands, 35.9 percent in the United Kingdom, 29.7 percent in Switzerland, 29.2 percent in Denmark, and 26.5 percent in Ireland. According to the most recent World Bank list of the easiest places to pay business taxes, the U.S. ranks 61st out of 183 economies, behind France (59th), Sweden (42nd), Holland (33rd), Switzerland (21st), Norway (17th), the United Kingdom (16th), Denmark (13th), and Ireland (sixth).
Among all developing countries, only Japan has a higher average statutory corporate-tax rate than America. OECD figures show that, by mid-2009, the U.S. rate (including both federal and state corporate taxes) was 39.1 percent. In Western Europe, the corresponding rates ranged from 34.4 percent in France, to 26.3 percent in Sweden, to 12.5 percent in Ireland. As Tax Foundation economist Robert Carroll has observed, America’s combined corporate-tax rate went from nearly ten percentage points below the weighted OECD average (excluding the U.S.) in 1988 to more than eight points above it in 2009. America is the lone OECD member, Carroll adds, that taxes its multinational corporations on their foreign earnings from labor and services rendered at a rate greater than 30 percent.