The U.S. Spends Far Too Little on Social Welfare

The US government has a spending problem. Given the country’s level of wealth, the government spends far too little — at least $1.6 trillion a year too little — on social welfare.

This exacerbates problems like poverty and inequality, and makes life a lot harder for a lot of people — from families with young children, to would-be college graduates, to the sick and elderly — than it should be. By leaving a large proportion of healthcare spending to the private sector, the United States has ended up with a healthcare system which does not even pass the basic test of universal coverage but is far more expensive than one that was publicly funded were at stake.

The best way to show this is to compare US social welfare with similar countries around the world. As a starting point, I use the OECD’s social expenditure database, which defines social spending as “cash benefits, direct in-kind provision of goods and services, and tax breaks with social purposes. Benefits may be targeted at low-income households, the elderly, disabled, sick, unemployed, or young persons.”

The database tracks both public social spending (think Medicaid) and private social spending (think employer-sponsored health insurance.) Adjustments are made for tax transformations — for example, in Denmark, the government offers very generous universal benefits, but then “claws back” a portion of these through either direct progressive taxation, or a more regressive consumption tax. So the final figures include these transformations.

I make two changes to the database figures. First, I add in public education expenditures. This is quite clearly “social spending,” as it involves a transfer of funds used to pay for a service consumed by households, so it should be included. (The OECD only includes education spending as a memorandum item in its full social spending report, as it has a separate database that tracks education spending.)

Next, I shift certain “tax breaks for social purposes” that are specifically designed to incentivize private social spending from the “net public” category to the “private” category. The biggest example of such a break is the tax exemption for employer-based health insurance, which gives tax breaks to employers for giving their employees healthcare coverage. I made this shift because these tax breaks are fundamentally a part of the private social-spending scheme. If the breaks were eliminated, private social spending would go down, and if private social spending were eliminated, the tax breaks would effectively disappear. They are not examples of the government spending directly on social transfers, but rather the government encouraging private social spending.

– People’s Policy Project

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