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Gregory Clark -- As Economic Disparity Grows, Higher Taxes May Be Only Solution

Rising health spending -- from 5 percent of U.S. annual income in 1960 to 16 percent today -- is no tragedy. Thanks to such spending, we can all live longer. But as medical advances allow us to live far beyond our working years, with the average American adult living to 78, the burden on the public purse will rise. Of the 47 million currently uninsured Americans, most will need public assistance to get adequate care.

Adult-onset diabetes, for example, estimated to afflict more than 21 million Americans, is a chronic condition associated with a lifestyle occurring at high rates among lower-income people. Modern medicine allows the average person diagnosed with diabetes to live more than 15 additional years, but at a cost typically exceeding $100,000. (Twenty-one million times $100,000 is $2.1 trillion, and that's just one disease.)

The United States was founded, essentially, on resistance to taxes, and to this day, an aversion to the grasping hand of the state seems fundamental to the American psyche. The share of total income collected in taxes by all levels of government in the United States is 27 percent, compared with 51 percent in Sweden, at the other extreme. The conflicts to come are foreshadowed in California, where popular anti-tax sentiment has forced substantial reductions in medical care for the state's poorest children.

How can we avoid or minimize such conflicts? The Obama administration seeks to do so in part through a more cost-effective health-care system. With luck, the United States could reduce health-care expenditures closer to the 9 to 11 percent of annual income typical in Canada and Europe. But health-care spending as a share of income has been increasing everywhere, so this will at best buy time before an inevitable crunch.

Others see education as a way out of this dystopia. The root problem is, after all, the widening of the income gap between the skilled and the unskilled. Can expanded education give the poorest the tools to resist the march of the machines? I'm skeptical. Already, much of the supposed improvement in high school and college graduation rates has come by asking less of graduates. We can certainly arrange to have everyone "graduate" from high school, but whether they will have the skills needed to make it is doubtful.

The last great hope may be to design a more efficient tax system. Much of the present system takes from people with one hand then gives back with the other, after bureaucracy eats its share. Taxes for Social Security, Medicare and roads all show elements of such recycling. A more efficient system would tax only where there is a need for some specific public good or a transfer to the poor.

Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, "from each according to his ability, to each according to his need" becomes the guiding principle of government -- or else confront growing, unattended poverty.

gclark@ucdavis.edu

Gregory Clark, a professor of economics at the University of California at Davis, is the author of "A Farewell to Alms: A Brief Economic History of the World."


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