While Democrats create new middle-class entitlements, other countries are struggling to pay for the entitlements they already have. The latest example is the United Kingdom, where a debate over payroll-tax increases is a warning to American voters.
Prime Minister Boris Johnson is considering a one percentage-point increase in the payroll tax—euphemistically called the National Insurance Contribution—to fund more spending on the National Health Service and so-called social care such as nursing homes and home health care. The payroll tax stands at 12% for employees’ portion on income between £9,564 and £50,268 ($13,400-$70,200) and 2% on income above that level, and 13.8% for the employer share. The tax hike is expected to raise about £10 billion per year.
The NHS always has its hat out for more cash. But the pandemic exacerbated a crisis in social care, which provides for adults who can’t live independently due to old age or chronic conditions. Demand for these services grows inexorably as the population ages and its health deteriorates. Covid-19 outbreaks in nursing homes exposed poor conditions and inadequate staffing.
Successive Conservative governments have responded, perversely, by trying to make social care even more of a middle-class entitlement than it already is. Tories killed off a short-lived proposal from Theresa May to require middle-class households to use their home equity to offset what local governments spend for them on in-home care.
Now Mr. Johnson supports a cap on individual contributions for care costs. This is another sop to the middle class, since the low-income, low-wealth elderly and infirm already receive fully subsidized care. The political goal is to allow middle-class families to pass their homes and other assets to heirs while taxpayers pick up the care tab.
Except that the middle class always pays one way or another. Advocates within the government for the payroll-tax hike think it’s the way to go because the public has shown itself willing to pay higher taxes as long as increases are disguised as “insurance contributions” and earmarked for the NHS and other care. Critics note this isn’t fair. Unlike income and capital-gains taxes, the payroll tax is paid only on wages and only until age 66. Older Britons would be exempt from extra taxation on their pension income or capital gains to pay for their care.
But there may not be a financing alternative. The dirty secret of European taxation is that the wealthy and the old—and especially the wealthy elderly—can easily reduce their tax bills via careful planning or emigration.
The trick to paying for a European-style social-welfare state is to tax younger people who lack the resources to go anywhere else. That means current workers on lower incomes. This is why European governments rely so heavily on regressive consumption taxes such as the value-added tax (VAT) and why Mr. Johnson’s National Insurance tax hike might happen despite the opposition.
It’s another warning for American voters, if any more were needed, of what’s in store for their tax bills if the Biden-Pelosi-Schumer Democrats push ahead with their expansion of the entitlement state. They claim “the rich” and “big corporations” will pay for it. Europe’s middle class knows otherwise.
Wonder Land: Emmanuel Macron welcomed Joe Biden to “the club.” He was talking about the European welfare state. Image: Kevin Lamarque/Reuters The Wall Street Journal Interactive Edition
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July 30, 2021 at 05:39AM
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Britain’s Middle-Class Tax Lesson - The Wall Street Journal
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