The Myth of Low-Tax America: Why Americans Aren't Getting Their Money's Worth

No, we don't pay as much as most of Europe. We don't get nearly as much, either.

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Today, in an annual rite of bemoaning government intrusion into our personal finances, most Americans can at least console themselves in their belief that the US has one of the lowest tax rates among developed countries.

Is that really true?

On the one hand, yes, we pay less. The share of our total national income captured by the government in taxes is small compared to most developed economies. On the other hand, we get less. Americans pay out nearly as much as some European countries, Canadians, and the Japanese. But we receive a lot less for our money.

Look at high-tax Sweden, which has the fourth-most competitive economy in the world, ahead of the U.S., according to the World Economic Forum. In return for paying their taxes, Swedes have access to a generous support system for families and individuals that most Americans can only dream about. That includes not only quality health care but also child care, a more generous retirement pension, low-cost college education (most Swedish universities charge no tuition fees), job retraining, paid sick leave, paid parental leave (after a birth or to care for sick children), ample vacations, affordable housing, senior care and more.

In order to receive the same level of benefits as Swedes, Americans have to fork out a lot more in out-of-pocket payments, in addition to our taxes. These payments often are in the form of fees, surcharges, higher tuition, insurance premiums, co-payments and other hidden charges. Whether it's in the form of a tax, fee or surcharge, either way it comes out of your pocket. Yet that fuller picture is not considered when calculating who pays the most.

Here are examples where Americans are paying more than we realize, yet not getting our money's worth:

Health care. Compare what Americans pay on health care to what they pay in Japan - about twice as much money, whether measured per capita or as a percent of gross domestic product. For those Americans that have health care coverage (about 45 million of us still don't), we continue to pay escalating premiums and deductibles. Many Americans are choosing to pay ridiculously high deductibles in order to reduce their premiums; I have a friend who bought a health care policy for his family of three children with a $10,000 a year deductible in order to keep his premiums affordable. But the Japanese receive health care in return for a modest amount deducted from their paychecks. And the various metrics show that they have better health, and their coverage is universal - everyone in Japan has health care, even as they pay less money to provide it.

College education. Many Americans are frantically stuffing tens of thousands of dollars into various private savings vehicles for their children's college education. Yet most German or Austrian students pay little in the way of tuition. Which means they don't graduate from college with a huge debt burden of tens of thousands of dollars, like many U.S. students do.

Child care. Child care in the United States costs more than $12,000 annually for a family with two children. In some countries in Europe, child care is free. In others, they pay $1000-$2000 per year, depending on their income. So they are paying at most only one-sixth of what Americans are paying -- and the quality is far superior.

Retirement. Millions of Americans are stuffing as much as possible into their IRAs and 401(k)s (which lost 40% of their value during the economic collapse in 2008) because Social Security provides a measly amount towards retirement -- only about 33-40 percent of one's final salary, which is not enough income for a comfortable retirement. It's also quite a bit stingier than most other developed countries, with the average retirement replacement wage for member countries in the Organization for Economic Cooperation and Development (OECD) being 57%, and in the European Union 62%. Naturally a higher replacement wage better ensures that seniors don't suffer a severe drop in their living standards, and for Americans to match that we have to save a lot more out of our own pockets.

Senior care. According to the OECD, Americans' private spending on old-age care is nearly three times higher per capita than in Europe because Americans must self-finance a significant share of their own senior care by paying out-of-pocket. Whether it's through taxes or out-of-pocket, either way, you pay.

Paid sick leave, paid parental leave. Without mandatory paid sick leave or parental leave (after the birth of a child), most Americans must self-finance their own time off. That's money lost, out-of-pocket. But Canadians, Australians, Japanese and Europeans receive all of these and more -- in return for their taxes.

Americans also tend to pay more in local and state taxes, as well as property taxes. Americans also pay hidden taxes, such as $300 billion annually in federal tax breaks given to businesses that provide health benefits to their employees -- that's $1000 for every man, woman and child in the United States, 45 million of whom don't have any health coverage at all. That amount could go toward financing a real universal health care system covering every American, since it's already coming out of every tax-paying American's pocket.

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