James Wickham: In a recent speech the Taoiseach stated that he wanted taxes in Ireland to be as low as those in the USA. Why? Allegedly this will ensure more jobs are created. It is in fact quite astonishing that in 2015 the USA can still be held up as a model in this way.
Firstly, let’s get the basic stuff out of the way. Of all democratic market-based societies, the USA is by far the most unequal (China is now probably even more unequal, but it’s hardly democratic). Table 1 shows the usual measures.
Year | France | Germany | Italy | Sweden | United Kingdom | United States |
mid 1970s | 21.2 | 26.9 | 31.6 | |||
mid 1980s | - | 25.1 | 28.7 | 19.8 | 30.9 | 34.0 |
mid 1990s | 27.7 | 26.0 | 32.6 | 21.1 | 33.7 | 36.1 |
2000 | 28.7 | 26.4 | 32.1 | 24.3 | 35.2 | 35.7 |
2005 | 28.8 | 28.5* | 33.0* | 23.4* | 33.5 | 38.0 |
2010 | 30.3 | 28.6 | 31.9 | 26.9 | 34.1 | 38.0 |
As the Table shows, inequality has been growing fairly steadily in the major capitalist countries, but the USA has always been the extreme case. One reason for the USA’s outlier position has been its low level of personal tax, especially on the upper income groups. Mr Kenny is therefore effectively advocating greater social inequality.
Secondly, US inequality means lots of poor people. Of course, inequality could mean there are more rich people around, but the general prosperity which has produced them has also ensured a decent living standard for everybody.
At one stage in the UK Peter Mandelson remarked that he was "intensely relaxed about people getting filthy rich as long as they pay their taxes," since New Labour was to use the welfare system (and those taxes) to increase the income of the poorest groups. This argument had some empirical plausibility for a brief period of time in the UK, it has never applied to the USA.
In Mr Kenny’s ideal country not only are the rich very rich, but the poor are very poor. Table 2 shows how not only are there more people in poverty but this poverty is deeper – there are more people with incomes further away from the median income.
Table 2. At risk of poverty: selected countries 2010
Poverty rates after taxes and transfers | ||||
Line 60% current median (2010) | Line 50% current median (2010) | |||
EU 27 | - | - | ||
France | 14.4 | 7.9 | ||
Germany | 15.3 | 8.8 | ||
Ireland* | 16.2 * | 9.0 * | ||
Italy | 20.1 | 13.0 | ||
Poland | 18.1 | 11.0 | ||
Sweden | 17.4 | 9.1 | ||
UK | 17.2 | 10.0 | ||
USA | 24.2 | 17.4 | ||
*Ireland figures are for 2009, all other country figures for 2010. Source: OECD Income Distribution and Poverty dataset | ||||
However, as Figure 1 below shows, the days when the USA always had higher employment rates than ‘high tax’ Europe are long gone. In the first decade of this century, as American taxes were falling, so too was American employment. So much for the American dream….
Figure 1 Employment rates: EU15, Germany, Ireland, Italy, Sweden, UK and USA
Professor James Wickham
James Wickham was Jean Monnet Professor of European Labour Market Studies and Professor in Sociology at Trinity College Dublin. He has published widely on employment, transport and migration in Ireland and Europe; he is the author of Gridlock: Dublin’s Transport Crisis and the Future of the City and co-author of New Mobilities in Europe: Polish Migration to Ireland post-2004. His book Unequal Europe: Social divisions and social cohesion in an old continent analysed the collapse of the European Social Model; his new text book European Societies (Routledge 2020) examines the structures of inequality in contemporary Europe. He is a former director of TASC.
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