The Germans have won

Beer, taxes and life expectancy

Every American, myself included, has an opinion on taxes and the deficit. Robert Reich, a professor and former Labor Secretary in the Clinton Administration has his, and I encourage you to read it here: Guardian Editorial

Let’s assume Reich has his numbers right and that the effective tax rate on the uber wealthy in the U.S. is 23% ,and that that number is higher than the tax rate paid by people who are under financial pressure, and just scraping by on a low rung of the middle class ladder. Reich’s solution is to raise the tax rate on the wealthy because we have a $31 trillion accumulated federal debt, and we need to start paying that down in a meaningful way. Implied in his argument is that it is fundamentally unfair for both billionaires and postal workers to be paying the same rate of tax on their vastly different incomes. I disagree with both of Reich’s arguments, but not because his numbers are wrong, or his sense of fairness is warped. Read on, please.

Of course, nearly everyone who can think straight knows that our federal deficit is an embarrassment, the blame for which is shared by both Republicans and Democrats. Nearly every pundit who speaks about the deficit has an elaborate plan on how to raise tax rates and/or close tax loopholes to lower our deficit. The problem with most of these tax-the-rich plans is they don't do all that much to lower the accumulated deficit---something but not a great deal.

Instead of arguing about raising or lowering tax rates, there's a different, and I think better, question to ask: What are our tax payments being used for? Look at Germany, Europe's largest economy. At the top bracket, a German can pay slightly more than 40% of  his income in taxes. But that 40% includes contributions to a pension plan that will pay about 70% of your final working income as a retirement benefit. Their system also provides free medical care, including some basic dental care. Private rooms are not included, and if you're not happy with it, you can pay extra for concierge-level medical care. The public health system in Germany is managed by around 100 not-for-profit entities spread around the country. Your taxes in Germany also give you one-year of unemployment payments at 60% of your salary. And there's long-term care insurance, and childcare benefits in their tax system. These taxes in Germany are split, with half paid by the individual and half by the employer.  The retirement age in Germany is now 66 and soon going to 67.

U.S. GDP: $24 trillion—-German GDP: $4.5 trillion

U.S. total debt: $31 trillion—-German total debt: $2.5 trillion

U.S.  military spending: $800 billion—-German military spending: $50 billion

% of U.S. GDP spent on military: ~3%—-% German GDP spent on military: ~1.1%

U.S. life expectancy: #46 in the world—-German life expectancy: #27 in the world

The German population is healthier and lives longer than we do. What explains that? I'd venture that if you have a health plan that covers nearly the entire nation, your population will live longer and be healthier than a country that doesn't provide that benefit. The other part of the explanation is the yet-to-be studied health benefits of regularly eating quality sausages while drinking top-notch lager beer. Americans die young because they eat too many hotdogs filled with corn dust and drink too much Budweiser, instead of Krombacher Pils.

Germany's population of 83 million is about a quarter of our 333 million, just as its GDP is about a quarter the size of ours. Interestingly, both countries have a similar percentage of immigrant populations (defined as people born in another country). Germany's number is about 12.5% , and ours is about 13.5%---a number, by the way, that includes the 11 or so million illegal immigrants in the U.S. So, the data does not support an argument that European countries (Scandinavia is often cited here) are successful in managing their societies because they are largely white mono-cultures, and don't have the costs we do in the U.S. of dealing with immigrants. That's just not true. What is true, but irrelevant to this discussion, is that the U.S. has a large illegal immigrant population (~11 million), 3.5% of the country's population, whereas Ger-many's undocumented immigrants are about 1 million people---less than 1% of its population. America's health system doesn't work for reasons that have nothing to do with the cost of caring for illegal immigrants. If we deported everyone of those 11 million illegals, we'd still have the same dysfunctional, over-priced healthcare system.

Germany’s tax system, emphasizing social benefits to workers (including their retirement) and medical care for all has merits our policymakers should be studying carefully. Dismissing the German (or models from other developed countries, not just Scandinavia) because they're "socialist" is just as foolish as making meaningless generalizations about "capitalism." Both are labels lacking content, explaining nothing.

Why, exactly, is the U.S. spending 16 times what Germany does on the military, when our economy is only 4 times larger? The standard response from defense hawks is that America has an essential role to play in policing the world for democracy. Even a C student of history since the end of World War II knows that we've done a very poor job running that police department. Afghanistan, alone, was a $1 trillion fiasco, prob-ably more actually, and what did we achieve there? We set out in 2002 to rid the country of the Taliban and in 2022 we gave the place back to the Taliban. Excellent use of money. Thanks to Nellie Bowles of The Free Press for the following:

“This week, Kevin Roberts, the president of the conservative Heritage Foundation, wrote about how America needs to cut defense spending. “For too long, Republicans considered it a victory to increase defense and non-defense spending by equal dollar amounts, without cutting a dime from the deficit.” And: “Congress needs to put away its kid gloves and put the Department of Defense and other agencies alike under the knife to excise wasteful spending.” TGIF, February 3, 2023

Our German friends have something to teach us about managing money: their accumulated debt is 55% of their GDP; ours is, staggeringly, 130% of our GDP.  Isn't a deficit nearly one and a half times the size of your economy just about the strongest dose of poison you could inject into a supposedly capitalist system? That's what corrupt socialists and communists do. They debase their currencies, spend money recklessly, and put their countries on the list of Unstable Places.

German workers who earn up to around $75,000 a year must pay roughly 7% of their income for health insurance and 9% for retirement benefits. Their employees match those percentages. If you earn more than $75K you can, if you wish, buy your own private health insurance, and roughly 10% of the country does that. For retirement benefits, the state tax burden stops at about $90,000 in income, but there are also company-sponsored and private retirement insurance that are available to supplement the 70% of your final year's income you get as a state retirement benefit.

The key point here is that these benefits in Germany are largely self-funded by individuals and their employers. They are not, like the situation in the U.S., dependent significantly on the federal government going into deficit spending to fund the benefits. The U.S. spends $12,300 per capita on health care and Germany $7,300, and as noted earlier, health outcomes and life expectancy in Germany are better than ours. This seems to me compelling evidence that the German health care and tax system simply function better than ours. The rich in every country can always pay for concierge medicine, private medical clinics and what have you. Taking care of the rich is not a public policy problem. Nor is taxing the rich more heavily a solution to our problems.

There is no quick fix for bringing our $31 trillion federal debt load down to a manageable level, but we could start with re-designing our tax code along the lines of the German model.