What Your Taxes Do (and Don’t) Buy for You

http://economix.blogs.nytimes.com/2011/06/07/health-care-costs-and-the-tax-burden/

June 7, 2011, 6:00 am
By BRUCE BARTLETT

Last week I showed that total taxes at the federal level — individual and corporate income taxes, payroll taxes and so on — are at a 60-year low as a share of the broadest measure of income, the gross domestic product.

Some readers took issue with my failure to include state and local taxes in the calculation. I have now done that, using data from the Organization for Economic Cooperation and Development, which represents the major developed countries. Among its most important responsibilities is the collection of internationally comparable data on a wide variety of topics, including taxes and health care spending.

The table below shows total taxes, including state and local government taxes, as a share of G.D.P. in 2008, the latest year for which there is complete data. The table makes clear that the United States has very low taxes by international standards.

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American conservatives tend to ignore the composition of spending; to them, just about all spending is equally bad. Europeans don’t have this attitude because their governments provide them with benefits from which all residents gain.

First is cash allowances that almost all families with children receive. We have something similar, the earned-income tax credit. Because it is part of the tax code, it reduces the tax burden; in Europe such programs are part of the budget and thus raise spending. Moreover, the earned-income tax credit benefits only low-income workers; in Europe, family allowances benefit virtually all families with children.

The impact on the tax burden can be dramatic if one views family allowances as negative taxes. For example, in Luxembourg, an average married worker with two children pays a nominal income tax rate of 16.5 percent (including state and local income taxes), while an American in the same situation would pay 5.2 percent. But once family allowances are subtracted from the Luxembourg worker’s income-tax payment, the effective tax rate falls to just nine-tenths of 1 percent.


More importantly, almost every other country has some form of national health insurance that covers, on average, 72 percent of all health costs. The comparable figure in the United States is 46.5 percent, and almost all of that is accounted for by Medicare and Medicaid, which largely benefit the elderly and the poor.

Average American workers must pay for health care out of their pockets, or through their employers in the form of lower wages. Europeans prefer to pay higher taxes and get government health care for every resident in return.

Conservatives universally believe that whenever the government provides a service it will be vastly more costly than if the private sector does so. This is why they support the plan offered by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, to essentially privatize Medicare. Conservatives believe competition will drive down health costs for the elderly.

But O.E.C.D. data show that Americans pay vastly more for health care than the residents of any other major country. In 2008, we paid 16 percent of G.D.P. in total health care costs, public and private combined. The people with the next heaviest health care burden were the French, who paid 11.2 percent of G.D.P. Indeed, at 7.4 percent of G.D.P., the governmental share of health spending in the United States is about the same as total health care costs in many other countries, including (as a percentage of G.D.P.) Luxembourg (6.8 percent), Israel (7.8 percent), Japan (8.1 percent), Britain (8.4 percent) and Norway (8.5 percent).

In other words, if we had a health care system like those in most developed countries, we could, in effect, give every American an increase in their disposable income of 8 percent of G.D.P. – about what they pay in federal income taxes – and have health care no worse than they have in Britain or Japan. It would be like abolishing the federal income tax in terms of allowing people to spend more of their income on something other than health care.

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The above link was reference in economistsview.typepad.com, see link below.
I have included some comments from that post.

http://economistsview.typepad.com/economistsview/2011/06/health-care-costs-and-the-tax-burden-in-the-us-and-europe.html#comment-6a00d83451b33869e2015432e72eea970c

Harold said...

College tuition (including medical school) is also an implicit tax.
Reply Thursday, June 09, 2011 at 10:37 AM
Mark A. Sadowski said in reply to Harold...

Excellent point. In France, Ireland, Poland, the Czech Republic, Slovakia, Malta and all of the Scandinavian countries college is completely tuition free. In most other European countries the tuition level is relatively small. In Germany for example it is limited to 500 euros.


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