Have We Reached the Limit to the Welfare State?

Today, Harris released an extraordinarily interesting poll on attitudes toward taxes, spending and deficits in several European countries and the US. In this post I am going to just discuss the US data, but the European data are in many ways more interesting; more than any other research I have ever seen they show the limit of the welfare state has been reached. When asked whether large budget deficits require a re-examination of the welfare state in Europe, the following percentages of people agreed: France and Italy, 68 percent;Spain, 70 percent; Germany, 73 percent; and in both the US and UK, 77 percent.

The principal lesson of the US responses appears to be that support for spending cuts and government downsizing is broad and deep. But at the same time, there is strong support for soaking the rich through the tax system. Also, Americans continue to have unrealistic expectations about how easy it will be to balance the budget without cuts in programs that affect them. This suggests that if forced to choose between spending cuts that affect them and higher taxes that don’t affect them, the latter could quickly become the dominant position.

Question 1: “Most Western European governments are taking major steps to reduce their budget deficits and public debts. Generally, there are two ways (and multiple variations of these ways) for governments to reduce deficits: cutting public spending and raising taxes. Which one of the following options would you prefer to see [insert country] take?”

US response: 37 percent prefer spending cuts to tax increases, 39 percent favor a mixture of the two but with spending cuts bearing most of the burden, 19 percent favor a mixture but with tax increases bearing most of the burden, and 5 percent would prefer tax increases to spending cuts.

Question 2: “Some argue that governments should make the rich contribute more than the less well-off, e.g. by paying more taxes. How much do you agree or disagree with this idea?”

US response: 71 percent agree (40 percent strongly, 31 percent somewhat) and 25 percent disagree (14 percent strongly, 11 percent somewhat).

Question 3: “Some argue that public spending cuts will harm the economic recovery in Europe whilst others claim that these cuts are necessary to tackle the budget deficits. If you had to say, which of the following statements would you agree most with?”

US response: 73 percent agree that spending cuts are necessary for long-term recovery, 27 percent think that spending cuts will harm the recovery.

Question 4: “If your country were to decide to cut public spending, how much, if at all, do you think the cuts will affect you and your family?”

US response: 9 percent believe they will not be affected at all, 35 percent think they will only be affected a little, 40 percent expect a moderate impact, and 16 percent believe they will be affected a lot.

Question 5: “Which of the following policy areas do you think should bear the biggest part of the spending cuts burden?”

US response: foreign aid, 72 percent; national defense, 31 percent; unemployment benefits, 22 percent; health care, 18 percent; education, 11 percent; police protection, 7 percent; and 26 percent chose other.

Question 6: “Many European countries have let their budget deficits rise in order to fight the financial crisis. Thinking of [insert country] how much do you agree or disagree that this was the right thing to do?”

US response: 59 percent disagreed (36 percent somewhat, 23 percent strongly) and 41 percent agreed (35 percent somewhat, 6 percent strongly).

Question 7: “Some argue that the large budget deficits and the spending cuts that have happened or been proposed call for a re-examination of Europe’s welfare states. How much do you agree or disagree with this view?”

US response: 77 percent agree (57 percent somewhat, 21 percent strongly) and 23 percent disagree (17 percent somewhat, 5 percent strongly).

Note: The Financial Times analyzed the European results in a July 11 report.

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