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Are we being rooked?

We like to think of Europeans as poor overtaxed serfs but the benefits they receive show the shortcomings of the US system

By Steven Hill

Originally at guardian.co.uk, Thursday 15 April 2010 [print_link]

<<—Tea Party demonstrators at a tax day protest.

MOST AMERICANS SEEM to regard 15 April – the day income tax returns are due to the Internal Revenue Service – as a recurring tragedy on the order of a biblical plague. Particularly this year, with US government deficits soaring, everyone from theTeabaggers to Senate Republicans are reviving a scary Friday the 13th scenario from the 1990s about a return to Big Government. Recently Rudy Giuliani even stated that President Obama was moving us towards – heaven forbid – European social democracy.

Europe frequently plays the punching bag role during these moments because there is a perception that the poor Europeans are overtaxed serfs. But a closer look reveals that this is a myth that prevents Americans from understanding the vast shortcomings of our own system.

A few years ago, an American acquaintance of mine who lives in Sweden told me that, quite by chance, he and his Swedish wife were in New York City and ended up sharing a limousine to the theatre district with a southern US senator and his wife. This senator, a conservative, anti-tax Democrat, asked my acquaintance about Sweden and swaggeringly commented about “all those taxes the Swedes pay”. To which this American replied, “The problem with Americans and their taxes is that we get nothing for them.” He then went on to tell the senator about the comprehensive level of services and benefits that Swedes receive.

“If Americans knew what Swedes receive for their taxes, we would probably riot,” he told the senator. The rest of the ride to the theatre district was unsurprisingly quiet.

The fact is, in return for their taxes, Europeans are receiving a generous support system for families and individuals for which Americans must pay exorbitantly, out-of-pocket, if we are to receive it at all. That includes quality healthcare for every single person, the average cost of which is about half of what Americans pay, even as various studies show that Europeans achieve healthier results.

But that’s not all. In return for their taxes, Europeans also are receiving affordable childcare, a decent retirement pension, free or inexpensive university education, job retraining, paid sick leave, paid parental leave, ample vacations, affordable housing, senior care, efficient mass transportation and more. In order to receive the same level of benefits as Europeans, most Americans fork out a ton of money in out-of-pocket payments, in addition to our taxes.

For example, while 47 million Americans don’t have any health insurance at all, many who do are paying escalating premiums and deductibles. Indeed, Anthem Blue Cross announced that its premiums will increase by up to 40%.

But Europeans receive healthcare in return for a modest amount deducted from their paychecks.
Friends have told me they are saving nearly a hundred thousand dollars for their children’s college education, and most young Americans graduate with tens of thousands of dollars of debt. But many European children attend for free or nearly so (depending on the country).

Childcare in the US costs over $12,000 annually for a family with two children, but in Europe it cost about one-sixth that amount, and the quality is far superior. Millions of Americans are stuffing as much as possible into their IRAs and 401(k)s because social security provides only about half the retirement income needed. But the more generous European retirement system provides about 75-85% (depending on the country) of retirement income. Either way, you pay.

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. Sixty million American workers have no paid sick leave, millions more have no paid parental leave following a birth, and so must self-finance their own time off. But Europeans receive all this in exchange for their taxes.

Americans also tend to pay more in local and state taxes, as well as in property taxes. Americans also pay hidden taxes, such as $300bn annually in federal tax breaks to businesses that provide health benefits to their employees. When you sum up the total balance sheet, it turns out that Americans pay out just as much as Europeans – but we receive a lot less for our money.

Unfortunately these sorts of complexities are not calculated into simplistic analyses like Forbes’ annual Tax Misery Index, a “study” which shows European nations as the most miserable and the low-tax United States as happy as a clam – right next to Indonesia, Malaysia and the Philippines.

But Forbes only adds up income tax, social security, sales tax or VAT and a few other minor fees. A thorough analysis would need to create a ledger in which all the supports and services Europeans receive are listed on one side and the amount of taxes and any additional fees they pay are listed on the other; and then do a similar analysis for Americans, listing what Americans pay in taxes as well as out-of-pocket expenses for those same services.

In this economically competitive age, increasingly these kinds of services are necessary to ensure healthy, happy and productive families and workers.

Europeans have these supports, but most Americans do not unless you pay a ton out of pocket. Or unless you are a member of Congress, which of course provide European-level support for its members and their families.

That’s something to keep in mind on 15 April. Happy Tax Day.

Steven Hill is Director of the political reform programme at the New America Foundation