Surprise, Surprise! Folks in Highly Taxed Countries Are Happier than Americans!

The Huffington Post recently had an article on how high tax countries are happier than the U.S. Surprise, Surprise! Folks in Highly Taxed Countries Are Happier Than Americans!: In the article Jane White writes "After the OECD created the Better Life Index to discern which are the happiest countries in the world an organization known as 24-7 Wall St. cherry-picked the list to narrow down those countries with the highest economic stability. Most likely, says MSNBC, 'the happiest people in the developed world get loads of social services without having to work too hard.' Or maybe these lucky folks not only don't have to pay for these services, more of them actually have jobs." White notes that the countries that have higher tax rates also have lower unemployment rates compared to the U.S. so she concludes that maybe higher taxes are not the job killers conservatives argue.

This could be true, but before we conclude this we should understand what the Better Life Index is about. According to the OECD Better Life Index web page the purpose is to ask whether "is wealth all that matters, or should we be looking at other things, like the balance between work and the rest of our lives? The Index aims to involve citizens in this debate, and to empower them to become more informed and engaged in the policy-making process that shapes all our lives." Do things besides wealth matter? I would argue yes, but does that mean we should ignore wealth? More importantly, wealth and a higher standard of living provides us the opportunity to pursue the other activities in our lives we value.

I decided to make some of my own comparisons. While the countries identified by 24-7 Wall Street have higher taxes and lower unemployment then the U.S., and are considered stable there are many countries in Europe many that we might consider stable that also have high tax rates and higher unemployment than the U.S. So why not combine another index the Economic Freedom of the World Index and see what we can learn when we combine well-being and economic freedom.

The countries highlighted in the article are Austria, Finland, Sweden, Netherlands, Australia, Norway and Denmark. I identified other Western European countries with high tax rates: Ireland, Germany, Hungary, France, Spain, Portugal, Greece, Italy, and Poland. What one can note is that the countries with higher tax rates and lower unemployment overall have a fair amount of economic freedom, ranking 40 or less out of 140 countries (lower numbers are better). While the countries I chose have high tax rates, and high unemployment are less economically free. The countries that are the most economically free in the index: Hong Kong, Singapore, New Zealand, Switzerland, Chile, United States, Canada, and Australia (one of the ones highlighted in the article). High rates can co-exist with economic freedom.

While the countries with higher tax rates noted in the article have lower unemployment than the U.S. the countries with the most economic freedom have lowest unemployment rates. Perhaps the most telling piece of information is economic growth. Many of the countries highlighted has being happier than the U.S. actually have economies that are shrinking (Norway, Denmark, and Australia) or are experiencing only modest growth. Again, the countries with the most economic freedom have the highest growth rates. What constitutes the well-being of a society may be open for debate and we might weigh different attributes more than other countries, but I personally would like to live in an economy that is experiencing economic growth and an increasingly higher standard of living. That does not imply low tax rates, but there is more to the story of well-being than merely the tax rates.