The American budgetary crisis that is causing such a stir in Washington takes on a different appearance when viewed from Europe. The huge American deficits now in prospect still look serious from here, but the solution dreaded by American politicians -- more taxes -- seems far less intimiating.
European governments get away with higher taxes on their middle classes partly by disguising the taxes but more importantly by giving the middle classes a good return for their money: free education, health care, safe, clean cities and efficient public transport, for example.
From here, efforts by Congress and the president to cope with deficits by making ever deeper cuts in an already meager level of government services look self-defeating. When the people who pay most of the taxes get a reasonable share of the benefits, then advanced industrial societies are able to raise revenue on a much larger scale than the United States.
This is what happens in the nations of western Europe -- the countries in the world most like ourselves, and (on a per capita basis) as wealthy as ourselves. Perhaps it isn't surprising that there have been no Proposition 13s in Europe.
The Reagan administration's basic strategy, now that it has cut taxes, has been to cut non-military spending to match. The president's budget report explains why.
It notes, without enthusiasm, how the United States has begun to catch up with European democracies in having a "full-blown social insurance system."
By 1981, the budget report notes, such commitments absorbed almost 7 percent of gross national product -- 21/2 times what they did in 1963. The whole analysis implies that our huge deficits come from this growth in spending on health, social services, pensions and the like.
The argument is hardly convincing. America's "welfare state" remains remarkably undeveloped by European standards.
Like the United States, France and Germany also run big deficits, though the accumulated debts of government in the United States are greater, as the figures show.
Overall Government Deficits and Accumulated Debts
Relatively speaking, government in America spends considerably less, but taxes are even lower. From a European perspective, we have deficits not because we spend too much, but because we pay too little in taxes.
Why this extraordinary American aversion to paying taxes, a distaste expressed not only by electing a president pledged to drastic tax reduction, but by numerous local tax revolts throughout the country? It is as if our politics have reverted to a never-ending Boston Tea Party. Perhaps it is our national character. Unlike the French and Germans, we would rather dream of being millionaires than pay for the security of a welfare state.
There may be another explanation, however, an explanation that lies in the particular way the American government spends its money and raises its taxes.
Take a look at the differences in where money goes and how it is raised. Comparisons of budgets and taxes can never be very precise. Statistics are seldom up-to-date and countries define categories and collect figures differently. Taking national items out of context and comparing them is always questionable. And for all our similarities with Europe, our political and economic culture is not the same. The tradition of the welfare state is certainly much older in Europe.
Nevertheless, certain broad differences between American, French and German fiscal patterns are striking. To begin with, European welfare benefits cost their economies substantially more. In both France and Germany, "income maintenance," which includes pensions, sick benefits, family allowances, and unemployment compensation, absorb nearly twice the proportion of GNP that they take in the United States.
In 1979, overall government spending on "income maintenance" was 17.9 percent of GNP for France, 18.2 percent for Germany and only 9.8 percent for the U.S. In Europe, moreover, the benefits, while presumably more generous to the poor, also seem to extend more significantly to the middle class than U.S. Social Security and welfare. European pension benefits depend much more on previous income than American social security, and the ceiling is much higher.
The ways the governments distribute money for education and health differ significantly.
The American government actually spends a slightly higher portion of GNP for education (6.4 percent) than Germany (5 per cent) or France (5.7 percent). But in Europe very few families take money out of their own pockets to pay for the education of their children. Education not only in primary and secondary schools but also in universities is paid for by the state. It is not that the European states pay more overall for education. On the contrary, public educational outlays per pupil are much higher at all levels in America.
That is little consolation to American families who, unlike their European counterparts, pay not only taxes but also large additional sums for college tuitions and, in some cases, private elementary and secondary schools.
Why are American education costs so much higher? Certainly most educators would be hard put to claim that America's public primary and secondary education was superior to Europe's. European pupil/teacher ratios, for example, are generally better. And few middle-class parents in French or German cities feel obliged to send their children to private high schools on the grounds that academic standards in state schools are too low.
The picture in the universities is more complex. In proportion to population, twice as many Americans go to universities as in France or Germany. But American public universities, particularly the better ones, charge high tuition. Individual American students or their families pay most of the costs, while in Europe they are subsidized. Even at the university level, in other words, the American taxpayer seems less directly benefited by public money than his European counterpart.
Unlike education, health remains an area where American public spending, though expanding rapidly, seems well below European levels. In 1979, the U.S. government spent 2.5 percent of GNP on health care, whereas the French and German governments spent roughly 6 percent. But while government spending on health covered 77 percent of the overall total in France and Germany, it covered only 42 percent of the total in the United States.
U.S. public and private health care absorbed a higher proportion of the national economy -- 9.6 percent -- than in France and Germany -- 8 per cent. But if American health care is better than in Europe, the differences are not overwhelmingly obvious. Certainly American health care costs the middle-class patient a great deal more.
If pensions, education and health are considered together, a certain pattern of differences emerges. Middle classes get more direct benefits from the state in European countries than in America. They receive not only higher pensions in their old age, but less expensive education in their youth, along with far more security from the financial costs of illness throughout lives.
The pattern also appears to extend to the way benefits are financed and taxes raised in general. European taxes are certainly higher. But the proportions raised from various types of taxes show considerable differences.
Composition of Tax Receipts
One obvious difference: America relies more on direct taxes on income and corporate profits, while European governments raise much more money from indirect taxes. The principal indirect levy is the "value added" tax, a sort of super sales tax that is added on to the price of goods as they move from manufacturer to wholesaler to retailer.
These indirect taxes are often attacked as "regressive," because the poor presumably need to spend a larger portion of their incomes than the relatively well-to-do.
Defenders of the indirect taxes note that the middle class, if taxed less on earnings, saves more, which improves prospects for economic investment and growth (provided the government does not preempt all the savings by its own borrowing).
In any event, direct income taxes, invariably progressive, do fall harder on the middle than poorer classes. Real estate taxes, also higher in America (9 percent of all tax receipts, vs. about 3 percent in France and Germany), also fall more heavily on the middle class. In short, American taxes seem to hit the middle class more directly and personally. Putting the American pattern of government services and tax payment together, and comparing it with France and Germany, helps explain America's tax revolt.
At heart, America's fiscal crisis is a political crisis. For more than two decades the American political system has been refusing to raise enough taxes to support its federal government, even though overall American taxes are comparatively low. Perpetual deficits are the logical result.
The growth of debt and inflation has by now put American governments in an impossible position. The Reagan administration, which rode to power on a wave of middle- class outrage, is quite right to note how serious the situation has become and how long it has been festering. The question still remains whether the Administration's own plans do not make matters still worse.
Instead of cutting the low level of American public services still further, why not build a more coherent program of public services for those who pay most of the taxes. Why should the United States lag so far behind the rich European states in providing education and health care, safe and comfortable cities, efficient public transport and other amenities which Europe's middle classes take for granted?
Europeans, to be sure, have their own fiscal problems. All three countries run deficits. Europe's welfare systems are doubtless too much of a good thing. Europe's success in raising money by indirect taxes may well have reached the point where it does real harm to industrial competitiveness. But the United States has a long way to go before its civilian benefits reach European levels.
Meanwhile, we suffer from an acute shortage of revenue to provide our own comparatively primitive level of public services and benefits. There is nothing wrong with a tax system that benefits the poor proportionately more than the comparatively well off. But any fiscal system is likely to founder if it does not provide reasonable benefits to those classes who pay the costs.