US Workers Are Paying High Taxes. But Without Any Of The Benefits.

The OECD may not be able to include employer-based health insurance premiums into its model, but I certainly can. And when I add them into the OECD model, I find that the average American worker has one of the highest compulsory payment rates in the developed world.

For this analysis, I take the information from the OECD’s Taxing Wages model and combine it with data from the Medical Expenditure Panel Survey (MEPS). The MEPS data shows the average premium for employer insurance, broken down by type of coverage (family or single) and payer (employer or employee). By counting those average premiums as NTCPs, we can compute a compulsory payment rate that is comparable to the compulsory payment rates the OECD produces for other countries.

To be clear about what I am doing here, the following graph provides a detailed breakdown of the difference between what we normally think of as “employee taxes” and the OECD concept of “compulsory payments.” This graph is for a married wage-earner with two kids who earns the average wage and has a family insurance plan through their employer.

If you are going to count employer-side payroll taxes and employer premium contributions towards the labor tax burden, then you also need to count those things as worker pay. The following graph mirrors the one above except it shows what the average wage really is when you count all of the employer’s labor costs, not just the cash it pays to employees.

Finally, we can divide each labor tax concept by each pay concept to show the difference between what we often think of as the “employee tax rate” and the actual “compulsory payment rate” (share of labor compensation going to tax and NTCPs).

The comprehensive measure shows that a married couple with two kids that makes the average wage pays over 43 percent of their income in compulsory payments of one sort or another. Health premiums are 26.4 of the 43.2 points.

Finally, we can go back to the OECD NTCP data and compare the US to other developed countries. When we do that, we find that only the Netherlands — with its compulsory private health insurance and compulsory private pension — has a higher labor tax burden by this measure.

If you want to know what it is like to pay income taxes like they do in Europe, then looking closely at your pay stub would be a good start. We don’t pay as many formal taxes as they do, but when you bring in payments we are compelled to pay and that are deducted straight out of our paychecks just like taxes are, it really does not look that much different, at least as far as labor taxes are concerned.

Ultimately, this is a long exercise in pointing out the obvious: American workers already pay more than enough money to provide good health care to everyone in the country. It’s just that they pay it into a private insurance system that wastes large portions of it on rents and administrative redundancy. As the Mercatus Center noted last year, by implementing a Medicare for All system, the US could insure 30 million more people, provide dental, vision, and hearing coverage to everyone, and virtually eliminate out-of-pocket expenses, all while saving $2 trillion over the first decade of implementation.

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One Response to “US Workers Are Paying High Taxes. But Without Any Of The Benefits.”

  1. Edomite Amalek Jews says:

    You have the benefit of serving the Jews.

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