U.S. Could Follow Europe’s High-Tax Path

Americans owe their economic edge over Europeans in part to the fact that they work more, a distinction often attributed to cultural differences: Americans want to consume more, while Europeans enjoy their leisure more. As late as the 1970s, though, the French actually worked longer than Americans. The reason they now work one third fewer hours has less to do with J yearning for the good life than it docs with escalating taxes, including pay roll taxes, in Europe. But Americans can’t afford to be smug: The U.S. may be headed in the same high-tax direction if it doesn’t tackle the looming crisis in Social Security and Medicare  Edward Prescott of the University of Minnesota says Europe’s higher taxes made it more expensive to hire labor, even though take-home pay may not have increased much. The bigger the burden, the harder it is for employers to pay a salary that will entice someone to take a job rather than stay on public assistance, go to school, or retire early. Between the early 19705 and mid-1990s, he says, the French tax rate rose to 59 percent from 49 percent, while the U.S. tax rate held at 40 percent. The result: The average French person of working age logged 24.4 hours a week in the early 1970s, one hour more than an American. By the mid-1990s, the French work  had shrunk to 17.5 hours, while the U.S. workweek had grown to 25.9 hours.

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