Wednesday, August 15, 2012

Taxes, revenue, spending and outcomes

New York Times economics and business writer Eduardo Porter uses today's column to lament that US taxes aren't as high as our international peers:
Citizens of most industrial countries have demanded more public services as they have become richer. And they have been by and large willing to pay more taxes to finance them. Since 1965, tax revenue raised by governments in the developed world have risen to 34 percent of their gross domestic product from 25 percent, on average. 
The big exception has been the United States. In 1965, taxes collected by federal, state and municipal governments amounted to 24.7 percent of the nation’s output. In 2010, they amounted to 24.8 percent. Excluding Chile and Mexico, the United States raises less tax revenue, as a share of the economy, than every other industrial country.
It's interesting that Porter discusses taxes as a percentage of GDP -- a relative number -- rather than discussing actual revenue produced. There's probably a good reason for that:

Source: Tino Sanandaji

As Tino Sanandaji writes:
In the latest available year, 2007, per capita tax revenue for Western Europe was 13.440$. For the United States, it was 13.140$, or only about 2% less.
In other words, despite higher taxes, Western European revenue levels were roughly the same as in the US. A smaller slice of a bigger pie is roughly equivalent to a bigger piece of a smaller pie. Perhaps Europeans have a lot more cool stuff provided to them by the government than Americans -- that's in the eye of the beholder, of course -- but a lack of money isn't the reason. 

Porter goes on to argue that the lack of sufficiently high taxation in the US produces, what else, dead babies. Seriously:
Every developed country aspires to provide a better life for its people. The United States, among the richest of all, fails in important ways. It has the highest poverty and the highest infant mortality among developed nations....No wonder we can’t afford to keep more children alive. 
This would be an interesting argument if there was a connection between government spending and improved outcomes. But that's not true for education, it's dubious at best for poverty and it's far from obvious for infant mortality
Like life expectancy, infant mortality is a function of many factors. The more you look at the problem, the less it seems to be correctable by a big new federal role in medical insurance—and, in fact, the less it seems to be mainly a medical issue at all.
No one denies the problem. Our infant mortality rate is double that of Japan or Sweden. But we live different lives, on average, than people in those places. We suffer more obesity (about 10 times as much as the Japanese), and we have more births to teenagers (seven times more than the Swedes). Nearly 40 percent of American babies are born to unwed mothers. 
Factors like these are linked to low birth weight in babies, which is a dangerous thing. In a 2007 study for the National Bureau of Economic Research, economists June O'Neill and Dave O'Neill noted that "a multitude of behaviors unrelated to the health care system such as substance abuse, smoking and obesity" are connected "to the low birth weight and preterm births that underlie the infant death syndrome." 
Nicholas Eberstadt, a scholar at the American Enterprise Institute in Washington, also attributes the gap largely to conduct. Comparing white Americans to Norwegians in his 1995 book, The Tyranny of Numbers, Eberstadt concluded that "white America's higher rates of infant mortality are explained not by poverty (as conventionally construed) or by medical care but rather by the habits, actions, and indeed lifestyles of a critical portion of its parents." Whites are not unique in those types of behavior. 
African-American babies are far more likely to die than white ones, which is often taken as evidence that poverty and lack of health insurance are to blame. That's entirely plausible until you notice another racial/ethnic gap: Hispanics of Mexican or Central or South American ancestry not only do consistently better than blacks on infant mortality, they do better than whites. Social disadvantage doesn't explain very much. 
Nor does access to prenatal care, as the health care critique implies. It used to be assumed that if you assured that pregnant low-income women could see a physician, their infants would do much better. Not necessarily. 
When New York expanded access to prenatal care under Medicaid, the effort reduced the rate of low birth weight infants by just 1 percent. In Tennessee, after a similar effort, researchers found "no concomitant improvements in use of early prenatal care, birth weight or neonatal mortality." 
So why does our infant mortality rate exceed that of, say, Canada, where health care is free at the point of service? One reason is that we have a lot more tiny newborns. But underweight babies don't fare worse here than in Canada—quite the contrary. 
The NBER paper points out that among the smallest infants, survival rates are better on this side of the border. What that suggests is that if we lived under the Canadian health care system, we would not have a lower rate of infant mortality. We would have a higher one.
Such facts are inconvenient things when there is a narrative to be advanced.

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