A short discourse on welfare states and socialism

It seems that many in our Commonwealth have a disconnect in distinguishing between a welfare state and socialism. This is a short precis on the difference.

In a socialist state, all the major means of production are owned by the state. There is little, if any, private enterprise. It's what we've seen in socialist states from the end of World War II until now. Even nominally capitalist states, like Britain and France, nationalized broad sectors of their economies. Rail and air and mines are under state control. In the Eastern Bloc, there was no space for private enterprise. Everything was under control of the state. As I like to aver, my father's barber shop was expropriated by the Cuban Communist government, because he was a parasite on the workers.

We now have a generation which wants free stuff. They want free college. Free healthcare. Free everything. They mistake this for socialism. They point to Scandinavia as proof. But it's nothing of the sort.

What the countries of Scandinavia are is social welfare states. That's not the same thing as socialism.

The countries of Scandinavia decided that social goods should be provided via the state by taxation. But the state never owned the means of production. They are capitalist states with heavy taxation to provide for the common welfare. Saab is not owned by the state. Private enterprise flourishes, but is taxed to provide for all the free things which Scandinavians take for granted. Oh, and individuals are taxed at a rate which would be anathema to Americans.

Many of the proponents of "free shit" in the US posit that all of the goodies which Scandinavia has will be provided just by soaking the rich. Here are the tax rates for the Scandinavian countries:

Sweden
Population: Roughly 10 million
National income tax rate: 25 percent (top rate)
Municipal income tax rate: 32 percent
Value-added tax rate:
25 percent on “All other taxable goods and services”
12 percent on “Some foodstuffs; non-alcoholic beverages; take away food; restaurant services”
6 percent on “Domestic passenger transport; books; newspapers and some periodicals” 

Denmark
Population: Roughly 6 million
National income tax rate: 15 percent (bottom rate 12.16 percent)
Municipal tax rate (average): 24.93 percent on taxable income
Labor market tax rate: 8 percent of personal income
Share tax rate: 27 percent up to 42 percent on share income
Vehicle registration tax rate: 100 percent
Value-added tax rate:
25 percent on “All other taxable goods and services”
0 percent on “Newspapers and journals; intra-community and international transport” 

Norway
Population: Roughly 5.3 million
Income tax rate: 22 percent flat tax on general income
Bracket tax rate on personal income: Additional 1.9-13.2 percent, depending on income
Social security tax rate: 8.2 percent
Value-added tax rate:
25 percent on “All other taxable goods and services”
15 percent on “Foodstuffs and beverages”
12 percent on “Certain cultural and sporting activities; transport activities”
Zero percent on “E-books” 

Finland
Population: Roughly 5.5 million
National income tax rate: Between 6-31.25 percent
Local income tax rate: Between 16.5-22.5 percent
Social security tax rate: Between 6.75-8.25 percent
Inheritance tax rate: Up to 19 percent
Value-added tax rate:
25 percent on “All other taxable goods and services”
15 percent on “Foodstuffs and beverages”
12 percent on “Certain cultural and sporting activities; transport activities”
Zero percent on “E-books”

Taken together, these taxes on personal income and on individual sales seem daunting. To those on the lower end of the income bracket, the benefits may outweigh the costs. However, to those in the middle of the income bracket, the costs are much more substantial than American progressive politicians lead voters to believe. As Matt Palumbo writes at Bongino.com:

"If America had Denmark’s tax brackets, someone earning $60,000 a year would be subject to the top 60% tax rate."

The current frontrunner for the leadership of the Labour Party in the UK is proposing an increase of taxes on those earning more than £80,000 per annum. That's just slightly more than your humble book slinger earns in US dollars. That's the middle class. Make no mistake: The cost for free shit will hit the middle class.

Now, you may say, it's worth it. But no one proposing these programs, neither Bernie Sanders nor Elizabeth Warren, are making these arguments. They say the rich will pay. The evidence from the countries they take as models clearly states that it won't be just the rich who pay. The middle class will pay for these programs. And that may be fine, if costs are diminished in other ways. But that's not the promise which is being made. The promise is that the the rich will pay, and the middle class will ride on their coat-tails, when evidence shows that this is not what will happen.

Turning the US into a fully-fledged welfare state might be worth it. But no one is being truthful as to what this will cost. No one is being truthful that this will hit the middle class. A true welfare state depends on tax revenue, and not just tax revenue from the rich. Sanders and Warren are selling a bill of goods. Revenues from the rich will not cover their programs. And the assumption that corporations will take the savings they earn from not providing things like healthcare and plow it back into salaries is ridiculous, without legislation. That's not without taking into account that Scandinavian countries, even with immigration, are largely homogeneous. They don't have a large substratum of their populations not wanting their tax dollars to go to those people.

And I know that the economists on Warren and Sanders' campaigns know this is the fact. That they won't be able to fulfill their promises without much heavier taxation, without the guarantee of higher wages. That's what gets my goat. They're promising the moon, without telling us how much the moonshot will cost. And as tax averse as the American public is, this is a BFD. If you want to make the argument that we should be taxed more to provide these benefits, then make it. I might be receptive. But tell me how I'll save money otherwise. If I can't, then the chances are I'll stay with the status quo.

Socialist states depend on authoritarianism to make the state function. Welfare states depend on the buy-in of the electorate. No one proposing a Scandinavian model in the US has gotten close to that. And that's why they have always failed.