We neither have our cake, nor eat it
I spent the first half of my life in what you would justifiably term “a welfare state.” The prevalent orthodoxy of my formative years was that the United States is NOT one.
Americans have no paid parental leave (“we” have three years of it!), no universal ‘free’ health, or pre-school, or college, the ideology went. “They” have two or three weeks of paid vacation; “we” have five, six, eight…
Americans don’t have these things, the theory went, because they choose to build their society around individualistic, personal-choice, and personal-responsibility principles. They choose to keep a larger share of their earnings than Europeans do; to make for themselves those decisions that Europeans delegate to a government.
To Americans, a market approach to health care, or education, is superior to Big Brother’s touch. The tax burden in the United States is lighter than Europe’s as a result…
The longer I live here, the more I question such stereotypes.
Let’s try to see if data bears them out.
If what we spend on social programs is the hallmark of a welfare state, we look awfully much like one.
As share of GDP, we spend just under the average for advanced economies on public social programs; 19.6 percent of GDP, compared to an average 20.1 percent.
(Throughout, I use studies from the Organization for Economic Cooperation and Development, OECD, which compares the world’s 34 top economies.)
But add in our unusually-high private sector spending – health and retirement benefits provided by employers and the value of tax breaks – and we end up spending a larger share of our GDP on social programs than anyone else in the world except France!
(We spend 28.8 percent; France spends 31.3; and the average for advanced economies is 21.7.)
A per capita look at the same factor – net social spending – upholds the idea. Our GDP is huge – about a fifth of the world’s – so our per-capita social spending is rather huge as well.
(But we are a big country, with many people. We may get outdone on a per-capita basis by tiny wealthy places like Luxembourg, which spread their GDP among much fewer people. We are not, however, outdone by major countries.)
It seems, then, that it’s not because we don’t spend much that we don’t get parental leave.
Is it because we have different social priorities? Or are we just wasteful?
Next, let’s examine the idea that, if we don’t get as many benefits as Europeans, at least we keep more of our money.
True, as share of GDP, we collect less tax revenue than most other advanced economies. Only Mexico, Chile, and Korea, collect less.
But on a per-capita basis our tax revenue ends up very, very average.
The connection between social spending and taxes (more taxes, more benefits; less taxes, less benefits) is weak. I saw no clear, brag-worthy trade-off.
Other factors, such as military spending, play a role, but they do not paint the full picture. After all, military spending is 16 percent of our federal budget. Social programs (Social Security, Medicare, Medicaid, etc.) are half of it.
(We are not the highest military spender, either. That’s countries in war zones, like Israel or Saudi Arabia.)
To recap, we enjoy neither Europe’s social perks, nor that much tax freedom.
We neither have our cake, nor eat it.
(Note: This article uses OECD definitions. Social benefits are defined as cash benefits, direct in-kind provision of goods and services, and tax breaks for social purposes. Benefits may target low-income households, the elderly, disabled, sick, unemployed, or young. To be considered social, programs must involve either redistribution of resources across households, or compulsory participation. Social benefits are defined as public when governments (central, state, and local) control the financial flows; and private when they don’t. Tax totals include federal, state, and local taxes; and taxes on personal income, corporate profits, goods and services, property, payroll, and other.)
Kremena Spengler is a former academic and journalist with the BTA, the Bulgarian national news agency, and Reuters. After some world travel, she moved to live a quiet life in New Ulm, joining The Journal in 1997. She enjoys mathematics and statistical studies way more than is right for a writer.