16/05/2006 3:48:32 pm
Bush And Big Government. I have spent some time during the last days with Daniel J Mitchell, PhD and McKenna Senior Fellow in Political Economy at The Heritage Foundation in Washington, DC. He has visited Sweden and we have done a few meetings and other arrangements. Mitchell is a leading expert in economic policy and he travels the world to give lectures about, for example, tax competition and flat tax. He is also rather critical to the Bush administration for its substantial increase in the public expenditure, i e the state.

In his view, the tax competition between countries in a globalised world with its increasing mobility, explains why so many taxes are decreasing. In the OECD countries, the top income taxes have on average decreased by 23 percentage points since 1980, and the corporate taxes have decreased by almost 20 percentage points. The question still remains, however, about how the overall tax pressure will develop. It is now slightly higher than in 1980. An increased mobility for people is most likely to lead to a need to decrease the total tax pressure. Countries simply have to be attractive.

But in the US, the federal public expenditure has increased from some 18 per cent of GDP when George W Bush came to power to 21 per cent today. And 11 per cent on average in state public expenditure should be added to that. Bush is criticised by the left for the Iraq war, but they should like his expansion of the state. He also signed a bill that will increase the public expenditure for Medicare by five per cent of GDP in the end. In 30 years time, American public expenditure will be 40 per cent of GDP if nothing is done. In the end, only higher taxes will pay for that.

The question is how likely it is that there will be American politicians of influence soon who will have the principles and the strength to stop and reverse that development. Clearly, the American people value their freedom from the state very much and the whole spirit of the American Constitution is about limiting the state. Not abandoning that for a model that has failed in Western Europe already is essential.