Dismissing the low taxes myth with a word

If there’s a common refrain in Conservative election platforms it’s lower taxes. No matter the current tax level, Conservatives believe it must be lower.

If this is simply a belief that more money should be spent individually and less collectively, so be it. A reasonable sentiment. But we also constantly hear that taxes must be lower in order to fully enjoy the benefits of a prosperous economy. This is promoted by a range of conservatives, from business people to media types to economists and, particularly from the latter, we hear clever theories about why this must be so.

We can dismiss those theories with one word—Norway. Why Norway? Well, Norway has one of the world’s highest tax rates, 42 per cent of its GDP. That compares to 33 per cent for us. So, according to conservative economic theory, Norway should be a basket case. In fact, it has a GDP per capita higher than ours ($80,000 to $53,000 US)—even higher than the Americans’ ($70,000 US) and the U.S. tax rate is only 27 per cent of its GDP.

I could, of course, have chosen a different word. Denmark, for instance, or Sweden. Again, they have much higher taxes than ours but also higher GDP per capita. And these two countries accomplish this with hardly a trace of oil or gas. In North America, if you don’t have oodles of oil and gas, you just aren’t in the game. Well, these countries are very much in the game. In fact, they’re winning.

I emphasize that these are not economic theories or computer models, they are real societies of flesh-and-blood humans buying and selling real goods and services.

This shouldn’t be surprising. In a modern nation, to optimize your economy you need a well-educated, healthy population in which everyone is enabled to do their best. And quality education, health care and welfare don’t come cheap.

Furthermore, by maintaining a relatively equal society with a fair distribution of wealth, you achieve a healthier society. Unequal societies tend to have worse social outcomes: more crime, drug use, obesity, mental problems, and so on. The U.S. is a testament to this—low taxes and the worst social outcomes among advanced countries.

The latter reminds us that the GDP is not, in fact, a good measure of the quality of a society. It is, after all, a measure of stuff, not of human well-being.

Indeed, economic growth can have negative effects on society, such as contributing to climate change, ecological spoliation or inequality. We need more comprehensive yardsticks.

Some countries are working on this. In India, for instance, the government is developing an Ease of Living Index to combine quality of life, economic ability and sustainability.

Bhutan attempts to measure Gross National Happiness, considering factors such as equitable socio-economic development and good governance.

The UN has its Human Development Index, which considers health and knowledge as well as economic prosperity. Lower taxes will do nothing to improve these metrics.

If, for whatever reason, we want more spending individually than collectively, then the Conservative low-tax approach is the way to go. But if our goal is both a prosperous and a healthy society, the answer is higher taxes, not lower.