Health insurance premiums should be counted as tax revenue?

Among advanced economies, the U.S. has a moderate tax revenue as a percentage of the GDP. This chart shows federal, state, and local taxes to be roughly 35 percent of GDP (33 percent is the estimate for FY2015).

With Obamacare, however, the government now forces citizens, either individually or through employers, to purchase health insurance from a set of government-selected vendors. How is that materially different from a European government forcing citizens to pay some extra tax and then providing (or paying for) health care?

If we consider health insurance to be a tax, we have to add in roughly 9% of GDP to the tax burden, bringing the total U.S. tax burden up to over 40 percent of GDP and government spending to over 50 percent (probably higher if the cost of government pension commitments were accounted for properly).  Adding in the nominally private health insurance premium costs, the U.S. would have a smaller private sector than most European countries. We would be more government-dominated than Sweden, Germany, Greece, or the U.K. (Guardian table). We would be in the same ballpark as France and Denmark.

Does it matter? I think so. The share of the economy that is government-run should affect the growth rate that we can expect. Parts of the economy that are run by the government are insulated from competition and therefore don’t bother to strive for higher efficiency. So as investors we should look to buy stocks in countries that have a larger free market. That means putting less money in U.S. stocks and more in Australia, Eastern Europe, and Korea for example.

This can also lead to political unrest. Thomas Piketty’s Capital says that calamity ensues when the rich bastards’ rate of return on capital outstrips the growth rate of the economy, the potential source of the average worker’s pay raise. With a capital-rich but sclerotic government-dominated country like the U.S. has become, it could be the case that investors are getting their returns from fast-growing economies on the other side of the planet but they’re still living here in the slow-growing half-planned economy of the U.S. Piketty says that’s a recipe for burning envy and confiscatory wealth taxes.

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5 Comments

  1. lelnet

    February 21, 2015 @ 4:30 pm

    1

    The european system is socialist, while the American one is fascist. (“Fascist” is not a code word for “I don’t like it”. In economics, fascism refers to a system in which business enterprises remain the nominal “property” of private owners who are entitled to split any profits from operations, but all meaningful decisions about how those enterprises function are made by the state or its designees…which is what PPACA has turned the American health care system into. Americans should also recognize it as the form of organization typically used to supply us with electricity, natural gas, and in some places tap water. We tolerate it more readily there because these are completely fungible commodities, about which the only choice most consumers care about is “how much do I use”, and we still get to choose that ourselves. Health care, to put it mildly, does not work that way.)

    From the consumer’s perspective? No, there really isn’t a meaningful difference. You take what the government tells you that you must take, do without what the government tells you that you cannot have, pay for it what the government tells you that you must pay for it, and if you’re dissatisfied with any of these dictates, your only options to correct the situation are politics, violence, and emigration.

  2. Ed

    February 21, 2015 @ 8:13 pm

    2

    While I agree with lelnet, the correct term is really “corporatism”, which is a component of fascism. Its still a really important component and its hard to see how you can have a free society that is also corporatist.

    The financial sector, which now essentially gets its money and has its profits set by the government, as well as the health care sector are now government controlled. One striking thing about the financial sector is that I used to work in that sector, and I held a federal government job for a short period, so I’ve recently done job searches with both the government and the financial firms. I’ve been struck by how similar their application processes have gotten.

  3. Jack Crossfire

    February 22, 2015 @ 2:56 am

    3

    The mandatory payments all go to insurance company CEOs, not the government. It’s also mandatory for everyone, whether they work or not. A tax would only apply to income. Of course, if you can’t afford insurance, there’s a fine equal to 1% of your income. The supreme court considers the fine a tax, while the president considers it a penalty. Only a tax can be constitutionally levied for failure to afford a product.

  4. Tiago

    February 22, 2015 @ 3:54 pm

    4

    The American model exists because Americans think corporations are better than government. It is not the same as the European. The American model is regressive (ie, all can get the same coverage for the same amount of cash — roughly), while the European model is regressive (higher-tax brackets contribute more).

  5. Vince

    February 23, 2015 @ 1:28 pm

    5

    I don’t think that the logic is there on this one. My health insurance is mostly paid for by my employer, which is the case for many Americans under the age of 65. Obamacare has added some regulations for my employer to follow, but the basic arrangements have not changed. It doesn’t really make sense to say the money that my employer spends for my health care should be considered a tax now and not be considered a tax a few years ago.

    If you’re going get into international comparisons and talk about Canada, Germany, the UK and so forth, you probably know that in all of those countries the government plays a much larger role in health care spending. Yet the total percentage of GDP spent on health care is significantly less and Americans receive very little discernible health benefits from all of our extra spending.

    This ties in Tiago’s point above. From the way that some Americans talk, it appears that they would prefer to pay $20,000 per years to an insurance company instead of paying $10,000 in taxes for health care. (There are made up numbers, but you get the point.) On the other hand, Medicare, which is essentially the Canadian system limited to people over 65, is probably the most popular institution in American life.

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