Lower taxes on wealthy means more taxes collected (Denmark Study)

[The Straight Story]

One of the nation's leading research institutes recommends eliminating the highest tax bracket as a way to increase tax revenue

Lowering taxes leads to higher state income. It sounds like every Liberal's mantra, but the recommendation comes from one of the nation's most respected research institutes, the Rockwool Foundation Research Unit.

The conclusion, to be published Friday in a report titled 'Tax, work and equality', is the first time scholars in Denmark have documented that eliminating the nation's top tax bracket - a dizzying 60 percent - would pay for itself.

According to the report, for every DKK 100 tax reduction for the highest earners, tax revenues would increase DKK 120, a net DKK 20 gain for the state.

'The high levels of taxation are not effective. That's something that should be of interest even to those who believe that people who earn more should also pay more. Right now we're shaking extra money out of them. Maybe we should try to find that money someplace else,' said Torben Tranæs, Rockwool research director.

According to calculations made by the Confederation of Danish Industries (DI), eliminating the top tax bracket would give an extra DKK 2 billion in taxes.

http://www.cphpost.dk/get/99237.html

I was reading Danish news and saw this, what caught my eye was this:

Lowering taxes leads to higher state income. It sounds like every Liberal's mantra, but the recommendation comes from one of the nation's most respected research institutes, the Rockwool Foundation Research Unit.

I don't know how their system works over there, but I am not sure I have heard this liberal mantra much in these parts.

Of course, if the taxes are insane and loopholes are allowing people to get out of it, maybe they are on to something.

Any ideas?

[lostinacause]

1. It only works when taxes are sufficiently high and people respond

to tax cuts by increasing their before tax revenue significantly.

[Lydia Leftcoast]

4. Yes, Denmark is starting from a very high level of taxation

It's the kind of thing JFK did when he lowered the highest marginal tax rate from 90% to 70%.

Eliminating the 38% tax bracket here would be insane. It would lead almost to a de facto flat tax.

[political_outcast]

6. so you like lower taxes for the rich?

???

[lostinacause]

If lowering that tax rate raises taxes what reason would there be to have

high taxes. Everyone is made worse off in this situation.

[political_outcast]

11. a little birdie told me....

...that rich people hire out "researchers" to give them the research they want. Do ya think maybe this is one of those times? I do....

[FogerRox]

20. Little birdie is right, heard of the Heritage Foundation?

They went as far as saying that a high top rate doesnt generate more revenue

[lostinacause]

22. The theory behind this is correct. On the other hand people have a tendency to state that

it will happen based on their political ideologies. It is an interesting phenomenon that every liberal should know about because it has the flavor of many other situations that give economic results that are strange. I should stress that the taxes must be much too high for this to actually happen.

[davekriss]

47. No

Laffer-curve supply side economics is a crock, very well refuted in the crucible of real life economics. The only thing that grows when you lower the top FIT rate is the wealth of the wealthiest and the national debt levied on everyone else.

Lowering the top rate amounts to taking dollars otherwise recycled in services across the income spectrum to the wallets of the few who, already having everything, spend less of every dollar received. The result is a crisis in aggregate demand. And that leads to...

Well, the top FIT rate was lowered to 25% right before the Great Depression and we witnessed an upward migration and concentration of wealth rivaled only by current times. OTOH, post-WW2 rates ranged from 70% to 90% and we had our period of greatest national prosperity. We witnessed then the formation of a solid middle class where many shared in the fruits of national labor, not just the few.

The only time an argument can be made for lowering marginal FIT rates is during periods of scant capital formation, where due to entry costs, taxes, cost of living, tarrifs and fees, etc. the ability to raise capital for new investment is prohibitively expensive (as indicated by high real interest rates). One way a central state can help in such situations is to decrease pressure on capital by lowering marginal FIT rates (but this alone would be insufficient).

Lowering top FIT rates when interest rates are low (capital formation is not an issue) amounts to madness, class warefare.

[FogerRox]

57. Kudos.

[Lydia Leftcoast]

25. No, I'm not, but I was just explaining what they were talking about

NOT Reagan-like tax cuts.

[Gold Metal Flake]

8. JFK lowered the tax bracket but significantly tightened loopholes.

Result: Rich paid more taxes. Too many people, especially conservatives, only state the first part without the second.

[lostinacause]

10. Even if loopholes were not reduced income could still increase

if incentives were properly aligned and the tax rate was sufficiently high

[Nozebro]

34. Even if tax rates were INcreased, the rich would still be rich. Your scheme,

such as it is, and only knowing the very skimpy, vague bit of info you've given, leads me to conclude that whatever wealthy group is paying to promote this knows damn well it's pure horseshit and can't be allowed to be seen in the light of day.

[lostinacause]

39. Yes, my scheme. Of course someone is paying me to explain a concept

that has little relevance to America. The marginal tax rate for which government income actually falls is fairly high. Most would estimate it to be at the very least 50% but likely somewhere between 70% and 90%. I don't know off hand what the highest marginal tax rate is. For a more thorough discussion see

http://en.wikipedia.org/wiki/Laffer_curve

Notice that when you tax above the critical value of the Laffer curve government revenue actually falls. That is both the rich and the "rest" are being made worse off. This sets a rational upper bound that members of society should be taxed at.

[FogerRox]

58. The US treasury has stated that during the WW2 period

revenues went up.

http://www.dailykos.com/story/2006/11/24/185917/30

SO raising the top rate to 92% raised revenue......

[1932]

63. Revenues went up because the US was coming out of terrible depression

[lostinacause]

68. The post above mine is correct. Also consider that in a war period something beyond

self interest may be guiding decisions regarding work and investment.

[FogerRox]

23. IIRC 92% to 86% during JFK, Reagan took the top rate below 70%

[Warpy]

36. Kennedy lowered the top rate to 70% in a series of steps

The legislation was passed in 1963 and the steps took place through 1965.

[1932]

62. ...and closed loopholes that kept very wealthy from paying the pre-existing high rates

Anyone who wants a good sense of American political and economic history from the 30s to the 80s should read Charles Parker's biography of John Kenneth Galbraith.

[Ignacio Upton]

2. Liberal is the same as center-right in the European political spectrum

For their political left, Socialist or Leftist usually rings a bell. "Liberals" in the European sense are the pro-EU types who support classical liberalism (ie. libertarianism in the markets.)

[bbgrunt]

72. Likewise, in Australia the liberal party are the conservatives.

while the left side of the spectrum is represented by the labor party.

[w4rma]

3. Progressives in America are fiscal conservatives. Neo-cons/Neo-liberals are fiscal liberals.

That is how it works everywhere else in the world.

[Gold Metal Flake]

5. When the Europeans speak of "Liberals", they mean Neoliberals...

...our Conservatives. Neoliberals are flat-earther, free-trade types. Sounds like the Confederation of Danish Industries might be the Danish version of the CEI.

[The Straight Story]

7. Makes more sense now, thanks to all who replied (nt)

[smirkymonkey]

9. Um, could someone explain to me exactly how this is supposed

to work?

It sounds to me like they are proposing a tax cut for the highest earners, not the entire population. I didn't know Denmark embraced "trickle down economics".

[political_outcast]

12. danes don't embrace trickle down, but the rich want it, so...

...they hire out 'researchers' and 'writers' to create pro-tax cut propaganda. It has worked WONDERS here in America. Just look around you....

[sam sarrha]

15. well is sounds like they learned a lot from us..

[Gold Metal Flake]

14. Reagan did it, and today, the US is a Utopia.

For the rich, that is.

[lostinacause]

24. He single-handedly defeated communism to.

If you tell a lie often enough ...

:shrug:

[lostinacause]

16. If the tax rate decreases economic theory suggests that there

will be an increase in the incentive to work and invest. If these effects are nontrivial then by decreasing the tax rate income increases. This additional income will create additional tax revenue however there will be a decline the money collected from the original level of income. It is a possibility that the increase in tax collected on the additional income could be higher then the decline from charging a lower tax rate.

In short it can happen because incentives change as the tax rates change.

[Nozebro]

26. Theory is one thing. Reality is another. It's not credible to say that rich

people will suddenly become entrepreneurs if given more money, and if they don't invest in new businesses, then how in God's name will a tax cut for rich people INcrease tax revenue?

[lostinacause]

29. Many high income earners work and face choices regading time and effort.

The case is not as clear for capital gains.

[Nozebro]

33. So? The case IS clear that wherever taxes have been lowered on the rich

they have had to be made up for by the rest of society and there is zero evidence for the notion that cutting their taxes will increase tax revenue. It's odd that anyone would think otherwise.

[The Straight Story]

38. I am guessing here from bits and pieces flying about here is how it works:

Rich folks already have enough things so the extra income they will save will be placed in a bank, mutual fund, etc. That money will fuel more growth then it would if the government took it and spent it on wars, foreign aid, pork projects, etc.

People want to make more money so they invest, the government wants to spend money on more things.

[lostinacause]

48. Something like that. The argument is better when the individuals

can choose to put more effort into making more money. That is the critical value for which this happens for investment is higher then for income from an individuals efforts.

[1932]

64. I see this all the time (anecdotally) with small businesses

Small businesses tend to pay higher marginal rates on corporate income than large businesses (the IRS website has a graph that shows this). A lot of small businessmen pass on additional business because the added after-tax revenue doesn't justify the added time and risk in acquiring that income. The tax code doesn't place the same burdens on additional income for large companies and they extra business that a small businesses passes on will go to a large business.

Not having a progressive tax structure that allocates tax burdens in a way that matches the value individuals (and individual corporate entitites) place on each additional dollar in revenue screws up incentives. A wealth-neutral tax code would not charge a small business the same marginall rate as a multimillion dollar company.

[lostinacause]

69. My understanding was that small businesses were taxed at a lower rate

when you account for the double taxation that corporations face. The double taxation is that corporations pay taxes then their shareholder pay taxes.

[1932]

73. The IRS website shows the effective rate of corporate income tax

and it's broken up by net income. The lower the net income, the higher the tax rate for corporations.

And, IIRC, in one recent tax year, four of the five largest corporations in the US didn't pay any income tax (which I'm sure is not an anomaly).

Furthermore, "double taxation" is a term like "death tax" -- it's right wing spin meant to make something logical sound evil.

All money is (or should be) taxed when it changes hands. If it wasn't, then people could easily avoid taxes by transferring money through that one method. You pay taxes when you earn money, and then you pay taxes when that same money earns interest in the bank or pays a dividend when you invest it in a stock. If it didn't, then your employer would pay you in low-value, high dividend-paying stocks so that you could avoid income tax. (Wait a minute -- that sound familiar.)

[Trillo]

75. But isn't that the great flaw behind one of the persistent miseries of civilization?

Reward "the impulse" for greed?

How does incentivizing such a lower aspiration as greed, presumably rewarding those most susceptible to greed's motivation, create a more humane society?

[davekriss]

65. And actual experience tells us...

...that if you leave more money in the hands of the rich then Bordeaux futures will rise, Van Goghs will sell for over $90 million, Bertram and Hatteras yachts will sell like hotcakes, vacation villas alongside trendy ski resorts will triple in value, NASDAQ will inflate to over 5,000 and the DOW will jump from its long held record of 1,050 to astronomical heights -- but nothing substantial will be made. Few additional hands will be employed.

What do we get for treating our rich so kindly? The construction worker peruses the want ads for any 7-11 job to tide him over, another working man dies of cancer because he did not have insurance to gain care, his children forced to join a mercenary military because there was no opportunity to attend college and the local factories were long closed. All to ensure that the Bordeaux drinking, Van Gogh purchasing, Bertram boating wealthy have yet more untaxed dollars to buy still more political influence, amplifying the class-selfish policy stranglehold already established.

Don't be foolish, a government that "takes" money spends that money. Every time a dollar changes hands value is created. Plowing that money into the hands of the already advantaged increases their advantage over the rest of us. There is a role for our democratically established institutions to regulate the "game" in ways that ensure brighter outcomes for the many of us and that includes maintenance of a progressive tax system.

This administration, though engaging in the most extreme Keynesian borrow-and-spend policy in history, has hampered prosperity via myriad means that enrich the few. The rest of us just so many "useless eaters" on their ledgers, valuable solely as cannon fodder for their imperial wars.

[lostinacause]

40. Considering everybody elses tax rate constant this still holds.

If people receive no benefit for working hard, longer, or making decisions that cost them time but increase future payoff then the result holds for some tax rate. This fairly easy to prove. Consider the incentives to earn more money at a marginal tax rate of 100%. Once a person made an income where they were taxed at that rate on the marginal dollar of income they would have no incentive to increase their income. If you lower the marginal tax rate it would go up. In the same way when the marginal tax rate is zero you get no income. Therefore there exists a point between 0% and 100% were tax revenue is optimized. What I said follows.

[sam sarrha]

13. maybe it is because the poor have to pay..MORE..taxes.. thus raising taxes

[sendero]

17. Sounds like another variation..

... on the Laffer curve, which has been totally and thoroughly repudiated.

[lostinacause]

27. It is not a variation of that Laffer curve, it is the Laffer curve. Also the

Laffer curve has not been refuted. All that people need to do is to respond to income incentive. Even behavioral theories suggest this is true.

Certain instances of being on the bad side of that Laffer curve may have been rejected but not the general case.

[sendero]

30. Dude..

... I'm going to go easy on you, but yes the Laffer curve, as implented by Ronald Reagen has MOST DEFINITELY been refuted. He ran up 3 trillion dollars of deficits trying to prove that it worked. It didn't.

Sure, there is SOME level of taxation under which the Laffer curve would work. Early sixties Britain, with its 95% marginal rates, comes to mind.

But nothing under 50% is going to be even close.

[lostinacause]

32. (Except when there is mobility between different jurisdictions)

[FogerRox]

37. Does the Laffer curve forget

A Large middle class creates demand for goods & Services, asking corporations and the wealthy to do something about it.... SO instead of a high tax rate dis-incentivizing cap investment, the market request balances it out.. Do I have this right?


My Parents got thru the Depression with a progressive income tax, we won WW2 with a progressive income tax. The 12 million men & woman that served in the military in WW2 came home, the GI Bill sent vets to college, and they started families. This created the largest, most vigorous and the best educated middle class, in the history of the planet. Labor unions were at the zenith of their power, our eductaional institutions were the envy of the world, corporations made money, the wealthiest made money. The American Dream was born.

http://www.dailykos.com/story/2006/11/24/185917/30

[izzybeans]

43. It forgets to use actual data. it's a theoretical model.

Martin Gardner demonstrated what happens with actual economic and taxation data. The two poles equal zero but the middle range is chaos and comes nowhere near a normal curve. The laffer curve is a laugher.

Ultra-rich supply siders take the existence of this curve (which is good as a teaching device for undergraduates in Laffer's estimation, and I would submit little else) as fodder for eliminating taxes on the upper class, when in fact even the theoretical propositions implicit in the laffer curve allow anyone to argue differently. First, one would have to decide at what point we sat on the curve. If the curve were right the argument that we must increase taxes would be equally valid if we were to just arbitrarily pick a point on the curve.

Unfortunately, conflating the real world with theoretical models (even when mathematical) has proven disasterous in this country as all the trickle-downers have shown at all of our expense. A more practical approach is called for utilizing real data, not some teaching device written down on a cocktail napkin for Dick Cheney at an elite hob-snob.

[Stargazer99]

18. I agree with #9-how does this work?

Decreasing taxes on higher income doesn't make sense. Eliminating those offices deductions for the Caman Island would probably bring in a lot more tax money besides getting rid of those "special" deductions..

[sendero]

19. Obviously...

.. there is some level of taxation that becomes a wet blanket on entrepreneurship. I'm pretty sure that American tax levels are no where near that point.

[Hidden Stillness]

21. It Only Means Rich People and Their Propaganda are at it Again

Sure it does, and when I send less money to pay my credit card bill, it pays it off faster; sure it does. This is from "one of the nation's most respected research institutes," the Never-Heard-of-It-Before. It must be right, I must have heard of it somewhere--it's the "highly respected," isn't it? Wow; what a cheesy routine.

"Every Liberal's mantra," I'm afraid, is that when you fall for things like this, and you cut rich people's taxes, all it does is shift it onto the middle class and poor, usually as increased sales tax, payroll tax, fees, property tax, or something else. The debt doesn't go away just because rich people welsh on it.

[BlooInBloo]

28. Is the *range* of the Danish income scale as large as ours?

That is, if Danish-wealthy isn't all that much richer that the Danish-mid-class (by contrast with their American counterparts), then possibly the revenue lost from lowering taxes on Danish-rich doesn't amount to much. By contrast with the American system.

Just speculating.


EDIT: Rephrased the parenthetical.

[lostinacause]

31. Actually the distribution does not matter. The is not trickle down economics.

All that matters is the change in before tax income and the change in tax rate.

[WCGreen]

35. As GDP grows, tax revenues grow....

[rman]

41. Sounds more like every republicans mantra, unless we take into account

that in Europe "liberal" is equivalent to (economically) Conservative, as opposed to it being more or less equivalent to Left-wing in the US.

But it's hard to tell if this article was written from a European or from a US perspective.

[rman]

42. So, and which is the problem that this solution is supposed to fix?

Denmark was/is doing just fine economically and socially.

I suspect the problem is that the rich want to get richer.

[Toots]

44. Maybe if I lower my salary I will make more money as well....

They can not have it both ways. They say the wealthy pays the huge majority of the taxes but if we cut taxes on the wealthy we will receive more tax money. Like if we cut taxes they will rush out and spend more money.....They already have more money than God why would a few more dollars suddenly make them rush out and spend their money? They don't get to be extremely wealthy by spending all their money. They usually spend other people's money like your and mine..

[1932]

45. the article says HALF of all workers pay the top rate

There's no way a 60 percent rate on half of worker is fair. People in the middle paying the same rate as people at the top is not progressive.

[Katzenjammer]

49. The fact that half pay the top rate doesn't necessarily mean what you think

It might mean only that their Gini Coefficient is a lot flatter than ours (which it is).

[1932]

50. It looks like Denmark has second lowest income inequality -- however,

in the top 30 countries, only three have a bigger ratio of top 10% wealth to bottom 10%, so, it looks like there might be room to draw some distinctions in the tax rate structure within the top 50% of income earners in Denmark (even if it were just to drop the tax rate on the 50th through 95th percentile to 45% and raise the rate on the top 5th percentile to 63 or 64%). In fact, since the top 20% to bottom 20% numbers don't show a similar concentration of wealth at the top, it looks like Denmark does appear to be slightly top-heavy compared, especially, to a lot of other EU countries.

http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

[lostinacause]

53. When you consider the shape of the overall economy the Denmark is 6th

in GDP per capita. Therefore while there may be a greater difference between the top and bottom wage earners in Denmark the overall welfare in an economic sense is much better then other places. In fact the reason why that can remain an innovative country might be because of the lack of a desire to completely eliminate wealth disparity. Again I should emphasize that when wealth is based on choices rather then as a birthright income inequality is less of an issue because it is chosen.

[1932]

59. Then again, Sweden has the lowest income inequality in the world

(after taxes -- before taxes, Sweden's income inequality is higher) and Sweden measures highest by every indication of happiness and contentment with government. (Cite: The Health of Nations -- one of the best books I've read in the last year.)

Sweden, I assume, achieves this with a progressive income tax structure that doesn't hit everyone in the top half with 60% rate of taxation. I assume they do it in a more fine-tuned manner.

[lostinacause]

71. Again I will point out according to Wiki the percaptia income is much higher in Denmark.

It is possible, and perhaps likely, given their respective Gini coefficients that Denmark has a higher real wealth level for most percentiles of the population.

Also, it doesn’t seem natural to equate Sweden's success on the measures you mentioned to taxation policy.

[1932]

74. How else would you attribute Sweden's success,

since it does have high income inequality before taxes, but is one of the most income-equal societies after taxes? It is tax policy which generates the revenue that is spent in a way that creates an incredibly content, healthy, wealthy, educated society.

You should read Health of Nations.

[lostinacause]

51. Look at the overall outcomes in the economy.

. In Denmark there is very little economic inequality, high levels of wealth and a small amount of economic determinism. When you look at these outcomes the lack of a highly progressive tax system seems to be a moot point from an equity standpoint. In fact they have a wealth distribution such that wealth transfer is not a major concern.

[1932]

61. It still looks like there's room to drop the rate on some of the middle tiers

of income and raise it on the upper tiers.

Tax rates should be an equal burden across all income levels. Denmark has a richer top 10% relative to the bottom 10% than Germany. It MAY be the case that there is a top tier of income earners in Denmark who have a different value of an additional dollar in income than the people from the middle up to the bottom of that tier. Just because Denmark is doing OK treating all of them the same in terms of tax burden doesn't mean it's fair or that they can't do even better.

Even if it only means a 2 or 3 percent different in the rate paid by the people between 50th and 90th percentile and the top 10 percentile, it might be a good experiment to run to see if the tax burdens can be allocated more fairly (to stoke aggregate demand in the middle, as Galbraith and Keynes might have advocated).

[lostinacause]

70. Could you specify exactly what you mean by an equal burden?

I have found that regarding taxes words like fair and equal are used to according to what the person saying them considers equal. It could be argued for example that taxing everyone a flat tax of $1000 puts an equal burden on everybody.

[1932]

77. Marginal rates of taxation should reflect marginal valuations of an additional

dollar in income.

If someone worked 40 hrs a week/52 weeks a year to earn 1000 dollars, they have a much higher marginal valuation of 1000 dollars than a person who can make 1000 in a day off of no-risk savings account.

A doctor who was to subject himself to liability and has to work all afternoon on a Sunday to make 10,000 as part of 300,000 annual income has a higher marginal value of that income than a CEO who cashes a 1,000,000 dividend check on top of a 4,000,000 annual salary.

To burden all these people equally, the tax code should tax their incomes at different marginal rates.

[underpants]

46. *WHOOPS* the Confederation of Danish Industries is an employER's funded org.

http://en.wikipedia.org/wiki/Confederation_of_Danish_Industries

The Confederation of Danish Industries (DI) (Danish: Dansk Industri) is a major private employers' organization funded, owned and managed entirely by currently about 6,400 companies within the manufacturing and service industries of Denmark, including large companies like Oticon, Rockwool A/S, and A.P. Møller-Maersk Group.

The organization represents its members when discussing new political ideas and comments on the turn of events in Denmark.

http://en.wikipedia.org/wiki/Confederation_of_Danish_Industries

[SoCalDem]

52. Cool! Eliminate ALL taxes.. We'll be RICH, I tell 'ya..

:sarcasm:

[lostinacause]

54. Read some of the posts to actually understand the arguement being made.

[SoCalDem]

55. Glanced at it, but I am not planning on moving to Denmark anytime soon

so I'll concentrate on our own unfair taxation "scheme" :hi:

[lostinacause]

56. If you read the right post they would have said that the concept only

applies to high tax rates.

[warrens]

60. Confiscatory taxes produce loopholes

Remember when the Beatles and Stones had to leave England? Their tax rate was 90 percent. Older wealth paid practically nothing; the taxes were rigged to confiscate new money.

However, that does not mean the wealthy should not pay more. Just not confiscatory rates.

[antiimperialist]

66. This study conducted by a WEALTHY PRIVATE COMPANY

the "thinktank" rockwool foundation is part of none other than the WEALTHY PRIVATE COMPANY Rockwool insulations:

Duh.

http://www.rockwool.com/sw3332.asp

[flaminbats]

67. why don't we have a balanced budget?

why did we have growing budget surpluses as Clinton left office and booming deficits as Bush held power?

neocons claim Clinton's massive tax increase had nothing to do with budget surpluses or a booming economy. they always point out that our huge deficits and weak economy would only be worse without the tax-cuts of the Bush administration! :eyes:

[and-justice-for-all]

76. I have always thought that what the States need..

..Is a STRAIGHT TAX, 10 to 12% across the board. It would make no difference if you made 200 or 2 million dollars, 10 to 12% right off the top.

With that, impliment Nation Wide Health Care, the kind where you just goto the doctor if you have too and you might pay 10 or 20 bucks. Percriptions would be reduced dramaticly, no price gauging at the Pharmacy either.

With kind of tax rate we could do alot better things, but it has to be a fair tax that we all pay equally. No special breaks just because you earnd over 150,000.

[Abuhans]

78. "It sounds like every Liberal's mantra"

From wikipedia, apparently the word liberal transformed only in the United States.

The cause(s) of the shift in liberalism in the United States "between 1877 and 1937...from laissez-faire constitutionalism to New Deal statism, from classical liberalism to democratic social-welfarism" has been a subject of study among scholars.<34>

The laissez faire economic liberals considered such measures to be an unjust imposition upon liberty, as well as a hindrance to economic development. This 19th century social liberalism is considered as the first significant split of modern liberalism from "classical liberalism." In 1911, L. T. Hobhouse published Liberalism, which summarized what social liberals believe is a "new liberalism," including qualified acceptance of government intervention in the economy, and the collective right to equality in dealings, what he called "just consent". So different from classical liberalism did Hayek see Hobhouse's book that he commented that it would have been more accurately titled Socialism instead.<39> (Hobhouse called his beliefs "liberal socialism".)

In some European countries the term "liberalism" refers mostly to what is called "libertarianism" in the United States, i.e., European "liberalism" is most often in favor of a free market-economy and a more restricted government.

In Australia the major conservative party is called the Liberal Party of Australia, where "liberal" was chosen to refer back to the old Commonwealth Liberal Party and also to distinguish it from the "socialist" Labor Party. However because of familiarity with contemporary US usage, the term "liberal" can take on a variety of meanings ranging from member or supporter of the Liberal party, to classical liberal, to "liberal" in the contemporary American sense (ie modern liberalism).

Joseph Schumpeter stated, "As a supreme, if unintended compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label," implying that modern liberals have "stolen" the word and given it a definition opposite its original meaning.

Daniel Yergin, a pulitzer prize winning author, and Joeseph Stanislaw write on the subject of the changed meaning of liberalism in America,

"In the 1920s, the New York Times criticized "the expropriation of the time-honored word 'liberal'" and argued that "the radical red school of thought...hand back the world 'liberal' to its original owners.""<44>
Following from this New York Times criticism they argue that leading Progressive writers used the word liberal as a "substitute for progresivism, which had become tarnished by its association with their fallen hero, Theodore Roosevelt." They also concur with F.A. Hayek view (in his essay "Why I Am Not a Conservative") that Franklin Roosevelt adopted the term to "ward off accusations of being left-wing" declaring that liberalism was "plain English for a changed concept of the duty and responsibility of government toward economic life."<45>