A few days ago I read a tweet from @comunidadfinan about a ranking of countries by tax revenue as a percentage of GDP, published late last year by Steven Rattner in The New York Times. The story was covered by an American outlet, so it is hardly surprising that the general data were used to analyse what is happening in the US in particular. I believe, however, that these figures can serve for more than a focus on a single country. They come from the OECD database, and it is on that basis that I try to answer the following questions: 1. How much should it cost a citizen to pay for a modern State? 2. How much should it cost that citizen to pay for a State with a social component of the so-called European kind? 3. Where do those resources come from? 4. Is the situation sustainable? First of all, we need to talk in equivalent units that can be compared. From a perhaps simplistic but intelligible standpoint, we can agree that 50% of $10,000 is not the same as 50% of $20,000. It is still 50%, but clearly one has more purchasing power with the $10,000 left in one’s pocket in the second case than with the $5,000 in the first. Moreover, a dollar does not buy the same in every country. Here, admittedly, the OECD does much to bring some order and comparability (see the attached charts). From there, we could ask ourselves, not in terms of GDP but in terms of equivalent per capita income, how much effort we devote to filling the State’s coffers relative to the per capita income of a benchmark country such as the United States. If the average US citizen has a purchasing power of 100, the average Spaniard has 59. In those terms, the American State takes 32 equivalent units per citizen (32% of 100), whereas the Spanish State takes 22 (37.4% of 59). How much should a modern State cost the citizen? And its social component? It is very hard to put a figure on how much a modern State that did not cover social needs should cost per citizen, and how much the social part of a modern State should cost per citizen. Let us assume, simplistically, that a country such as the US funds only the non-social needs of the modern State. This is not entirely true, but we can agree that a country such as Norway funds many more social needs than the US. In the end, we can shift the balance one way or the other, but I do not believe the message will change. On that assumption, we can say that the non-social State would cost 32 equivalent units per citizen. 
In Norway’s case, the State would therefore spend 32 equivalent units on the non-social side and a further 27 units on the social side. And even so, thanks to their capacity to generate wealth, Norwegian citizens would keep 47 units in their pockets. The secret, of course, is that they generate almost 107 equivalent units (against the US benchmark of 100). Does that mean the social component must cost 27 units per citizen? Using the same method, Sweden, Denmark, Finland and the Netherlands would be spending between 8 and 9.5 equivalent units per citizen on the social side. Germany would be at around 3 units. 
Again for the sake of clarity, let us assume that the social component a modern European-style State must fund amounts to 8 equivalent units per citizen. On these numbers, a European-style country would need to spend some 40 equivalent units per citizen to provide a modern State with adequate social coverage. How much are citizens contributing, in equivalent terms, in different European countries? 
This raises a number of questions. Is the State providing the services of a modern State? If we assume that, to some extent, it is, then, if the resources do not come from its citizens, where do they come from? The first question would involve many nuances about how efficiently different States manage the resources their citizens place in their hands. The second, however, is much easier to answer: if my own citizens do not provide the money, the citizens of other countries will have to. In other words, I will have to borrow to make up the shortfall. This leads us to a troubling question: is that sustainable over time? Debts, clearly, are loans over a given term. The only point of taking on debt is to enable us to grow and generate the additional resources with which to repay it. Otherwise, we are in serious trouble. There is no shortage of examples. In relative terms, the social deficit for the European Union as a whole (28 countries) is 2.5 equivalent units; for Spain, Portugal and Greece it is between -10 and -12 units. Following this line of argument, that deficit is being filled mostly with debt. The only way, therefore, to make a modern State with a European-style social component sustainable in places such as Spain (and, more urgently, Portugal or Greece) is to grow, and to grow considerably. It is one of two things: either we ask our leaders how we are going to grow, and they tell us credibly in which sectors and with what resources that growth will come about, or we had better prepare ourselves to give up a modern European-style State. PS: Have you seen Japan?…
Published on Friday 8 May 2015 in diarioabierto.es www.diarioabierto.es – The Tax Burden and the Modern State: Is It Sustainable?
