The US collects about 27% of GDP as tax revenue. This is lower than the OECD average of about 34%, and much lower than some nations that are as high as 40-46%.
So my question is, what do they do with the money exactly?
I know one answer will be ‘universal health care’, but that isn’t it. Because other nations spend half what we do on health care, and health care in America is twice as expensive, the US spends about the same % of GDP on public health care as other nations.
France and the US both spend about 8% of GDP on public health plans, but France collects 46% of GDP in taxes while the US collects 27%. So it isn’t health care.
Its not military obviously, most other nations spend far less on military as we do. I think the average is closer to 1-2% for most western nations while the US is at about 3-4%. So if anything other western nations are saving money on military expenses that go to other programs instead.
People may say ‘free college’, but free public college doesn’t cost much. I think in the US it would run at most $70 billion a year, which is 1/3 of 1% of GDP. So that isn’t it.
So what exactly do they spend all the tax revenue on? Deficit spending may be lower, but before the Trump tax cuts the US federal deficit was at about 3% of GDP. I don’t think thats out of line with other western nations.
In Quebec 47% of the provincial budget is spent on health care. There is also some federal expenditure but not that much. There is a lot on infrastructure both federal and provincial. I guess a lot is spent on social welfare. I get a pension from my employer. Then there is a provincial pension based loosely on what I paid into it over the years. In addition, there is a federal “old age security” which, in my case, is partly clawed back because my total income is too high. Then there is a federal “guaranteed income supplement” for low income pensioners, of which I am not one so I don’t know how it works.
Education is another place where we spend money. I have lost track of it now but back 25 years ago, a year at McGill cost about $2000 for a Quebec resident, $3000 for any other Canadian and $13,000 for a foreign student. And $13,000 was what McGill received for each student enrolled. And didn’t seem to pinch pennies. At that time, private American universities were typically charging $40,000. Why are they so expensive?
Possibly, but 10-20% of GDP better? In what ways is it better? I assume there is more assistance for the unemployed, disabled, poor, etc.
Total infrastructure spending in the US is about 440 billion a year by federal, state and local governments combined.
I wouldn’t be surprised if infrastructure is better in Europe, but 440 billion is only about 2% of US GDP. So having amazing infrastructure would take at best an additional 1% of GDP.
Its not health care though, the US spends about the same % of GDP on health care for public plans as Canada does. About 8-9%.
And college isn’t it either. Private university in the US is 40k a year, but public college is already very heavily subsidized. For the state university where I am, in state tuition is 10k a year, and its 35k a year for out of state. So public college already has a 25k a year subsidy from the state government. Making public college free would cost less than 0.3% of GDP.
It is health care- and other things, like a much better safety net. You are comparing apples and oranges, comparing what a nation spends it tax money on vs what a nation spends it’s GDP . GDP is spent by all of us. So the people and businesses of the uSA spend a lot of THEIR money on healthcare, but the Feds dont. What the feds do spend it on is medicaid and Medicare.
No, a large part of it really is infrastructure. A much larger portion of government spending in Europe goes to investments in power plants, transportation, communications and such. No single operator with maybe a couple million customers can possibly afford to build a nuclear power plant or a high-speed rail line or a nation-wide fiber-optic cable network without substantial investments from the government. There’s also a much smaller tax base to collect from, so something that costs a negligible part of the United States federal tax revenue to build may well be 2-3% of Denmark’s entire state budget.
Wesley: are you acquainted with the idea of tax expenditures?
So suppose you want to give support for renewable energy. In the U.S. the approach is tax credits and deductions. In other countries it is direct public expenditure. Thus for the same impact the tax rate would be lower in the U.S.
It isn’t health care from what I can tell. In the US we spend about 8% of GDP on public health programs, which is in line with other western nations. So they aren’t spending more money on UHC, they’re all spending roughly ~8% of GDP on public health care irrelevant of whether their total tax burden is 25% or 45% of GDP.
Also my stats are for % of GDP spend on public health programs, which are funded via tax revenue.
But Europe as a whole has a GDP roughly on par with the US. So yeah a small nation in Denmark may cost a lot but overall for the EU it should average out shouldn’t it? I mean places like France, Germany, the UK, etc. all have large economies.
I don’t know what the EU spends on infrastructure, but this article implies it ‘should’ be 688 billion euros a year.
Which implies it is less than ~700 billion in USD, and like I mentioned earlier the US spends about 440 billion in USD. So that is at most, an additional 200 billion a year. Which is 1% of GDP.
In the US I get the impression we spend about 30% of GDP as public funds (after you factor in deficit spending), they are spend on items like
5% social security
8% public health programs
3-4% military
2% infrastructure
4-5% public education (public K-12, in state college, etc)
etc. But those 5 programs probably make up the bulk of our public sector spending.
Thats possible. Tax credits for employer health insurance replace public spending on health care. Tax credits for pension savings replace public pension plans. Tax credits like the EITC and child tax credit replace public welfare programs.
The US has a lower tax burden compared to GDP because it has a high GDP, and a high per-capita GDP (higher than all of the countries on your first list except Norway. So 27% of a high number is as much in actual money you can do stuff with as a bigger percentage of a lower number.
US GDP per capita is around $59,500. 27% of that is around $16k - that’s what the government gets to spend per person. Meanwhile, Italy is taxing 42.4% of a GDP per capita of $32k - they get something under $14k per person. If you go through the list like that and calculate how much money each government has per person, the only countries significantly above the US are the northern high-social-welfare states - Norway, Sweden, Denmark and so on. US ends up on a par with Germany, leapfrogs over a lot of the rest of the list
I’ve never been clear on whether the calculation on tax paid in the US includes local taxes or not. But IIUIC that’s one source of financing for public schools systems which in most other countries comes from taxes at higher levels.
Public transportation systems. I’ve helped foreigners learn their way around the intrincacies of Spanish subway and bus systems and one thing which surprises many of them is that little children go free. We see that as part of the “children are everybody’s responsiblity” principle.
Infrastructure, from sewers to hospitals.
The one item on which we spend a lot less in % of taxes than the US is the military. But the other big bills are the same as for the US. The concepts are the same, what’s different is how big a pie slice each of them gets.
Some European nations have large civil service workforces, and early retirement eligibility. Combined with longevity generally better than in the U.S., that can cost a bundle.
One thing paid for by taxes in other countries but not the US is maternity/paternity/childcare/sick leave - when you hear about countries where people are entitle to say 26 weeks of leave at 50% pay, taxes are paying for some or all of that .
The US spends about 30% of its GDP via the public sector (we collect about 27% of GDP in tax revenue and run deficits). Places like France spend about 46% of their GDP in public funds. Since tax revenue and spending have to more or less balance out (there is deficit spending), France is spending roughly 16% of their economy on public funds for ‘something’ that the US isn’t.
