Tuesday, March 15, 2016

No, the United States does not have the best health care in the world

In the popular imagination, the United States provides very high quality health care services--but only to those who can afford it. In the popular imagination, health care is the one shining exception of the American social welfare state--the one area of social welfare where the United States boasts higher quality services than the rest of the world. This is a myth.

First, the United States is middling at best among peer countries for rates of disease survival. And second, care is demonstrably of very low quality:
According to a recent RAND study published in the New England Journal of Medicine, uninsured patients receive only 53.7 percent of the care experts believe they should get—that is, appropriate, evidence-based treatment. But according to the same study, patients with private, fee-for-service insurance are even less likely to receive the proper care...
In addition to overtreatment and undertreatment, there is also flat-out mistreatment. Consider the following statistics: The Institute of Medicine estimates that lack of health insurance among people aged twenty-five to sixty-four causes 18,000 premature deaths annually, which is appalling. But the Institute of Medicine also estimates that up to 98,000 Americans are killed in hospitals every year by medical errors. In 2006, the IOM issued a new study that found that hospital patients in the United States experience an average of at least one medication error, such as receiving the wrong drug or the wrong dosage, every day they stay in the hospital.
All told, according to the RAND study, Americans receive appropriate care from their doctors only about half of the time, and the results are deadly. In addition to the 98,000 killed by medical errors, another 126,000 die from their doctor’s failure to observe evidence-based protocols for just four common conditions: hypertension, heart attacks, pneumonia, and colorectal cancer...

Sunday, March 13, 2016

Actually, even rich people would be better off in a social democracy

It's often assumed that rich families have nothing to gain from a social democratic social welfare system. To see if that's actually true, I'm repeating the analysis I did for a median income household for richer households. These are the key tables for a median income family:

Clearly, median income households are much better off in social democracy than in the American social welfare system. Though taxes are much higher in the social democratic system, the enormous out-of-pocket spending American households must spend on social welfare easily outweighs those higher taxes. Once we account for the private, out-of-pocket spending in the American social welfare system, it becomes obvious that the high taxes of the social democratic social welfare system are a very good deal for most families.

However, the same might not be true for rich families. Perhaps rich families can afford high out-of-pocket spending and would actually be financially better off with the high out-of-pocket spending and low taxes of the American social welfare system.

To find out, let's repeat this analysis using the exact same methods as median income, but for a rich household. We'll do the analysis for a household at exactly the 90th percentile for income. If over 90% of Americans would be better off under social democracy, that should be pretty convincing.

Monday, March 7, 2016

Revisiting the cost of the welfare state for individual households in the United States and the social democracies

Image: But can your social welfare spending buy this?!?!? (Northern lights over Saurbaer, Iceland / flickr user benhusmann)

I'm revisiting this 2014 post for two reasons. First--and most importantly--I did not realize when I first wrote it how important it was, so I outlined general trends and was not super careful about my analysis. My aim was to point out the hypocrisy of crying foul at the high tax rates of the social democracies even though a typical American is far worse off due to the high cost of private social welfare services. 40% taxes may seem high, but a median income American family can expect to spend over 60% of their income on federal (income plus payroll) taxes, employer-sponsored health insurance, and recommended savings for retirement alone--and this doesn't even include student loans payments (an additional 11% of income on an income-based repayment plan), day care services (up to 30% of income depending on the state), or other common social welfare costs. You don't need super careful analysis to make this point.

Second, some OECD links I used are now broken and so it's no longer clear where the data are coming from.

I'm keeping the original post up because it has some research which I don't need to repeat. But here, I'm going to be less sloppy on my analysis of labor costs and social welfare contributions.

You can read this page alone and consult the original post for links that didn't make it into this post. Before beginning, recall that median income in the United States is pretty similar to the social democracies. Here is the revised table for median income households (click for unobscured image):

The blue percentages at the top of the table are expressed as a percentage of gross labor costs. For the American side, this means:

At first, it might seem reasonable to consider at what a typical family earns in income, then consider what percentage of that income they pay in taxes and for social welfare. But this is misleading, for two major reasons. I call this the "sticker price" of the social welfare state--the cost of the social welfare state that a typical individual or family sees, but not the cost that they actually pay.

The first reason why the sticker price is misleading is because it comes nowhere near the total cost of the welfare state for this family. The sticker price ignores many costs that support this family's social welfare benefits and services: the cost of employer contributions to Social Security, Medicare, and employer-sponsored health insurance, for example. Since these are costs that support the social welfare needs of this family, it makes no sense to ignore them.

Second, it simply makes no sense to think of individual labor costs as somehow different from each other. It makes no difference to an employer--whether American or Scandinavian--if a dollar is spent on cash wages, mandatory social security contributions, or fringe benefits; to an employer, a dollar spent on labor costs is a dollar spent on labor costs, no matter the final destination of that dollar. Indeed, in the social democracies, 90% of social security tax burden falls on workers; in other words, for every dollar an employer is forced to contribute to social security programs, a worker's wage falls 90 cents. Thus--on paper--employers pay 100% of the employer contribution to social security, but in reality, employees pay for nearly all of those contributions because their wages would be higher if the employer's social security taxes did not exist. And in the United States, a similar phenomenon occurs with employer-sponsored health insurance: employees accept lower wages at jobs that offer health insurance. Clearly, looking at one form of labor costs (cash wages) while ignoring all the others makes no sense since the line between wages, benefits, and mandatory employer social security contributions is blurred, to say the least.

In sum, it makes no sense to point to the sticker price as being a complete accounting of the social welfare costs of a typical family; it ignores too many costs of the social welfare state and ignores several forms of labor costs.

Thus, the only way to fairly estimate the total cost of the welfare state is to sum every component of welfare spending and express it as a percentage of every dollar spent on labor costs--and so I've done this for both the American and social democratic columns (the blue percentages at the top of the first table). This is captured for the American side in the immediately preceding table (the social democratic side is covered below), which is a complete accounting of the cost of the welfare state to a median income American family. The left column is every dollar that this family's employers spend on them: this includes wages, benefits, and mandatory contributions to Social Security. On the right is every dollar that goes to taxes or social welfare: all taxes and social security contributions paid by both employer and employee on wages or labor, and all money spent on social welfare benefits paid by both employer and employee (discussed in greater detail below). Obviously, some items are in both columns--for example, employer contributions to health insurance and employer contributions to Social Security are both labor costs to the employer and are social welfare costs. This table is the total cost of the welfare state for this median-income individual family: all taxes, social security contributions, and spending on private social welfare benefits as a percentage of every dollar an employer must spend to employ this family.

Here is a table of the cost of other common social welfare benefits and services, alongside their out-of-pocket cost in the American social welfare system--in dollars, as a percentage of income for a median income family, and as a percentage of gross labor costs for a median income family:

There is a range for child care because the cost of high quality child care services varies wildly by state. In nearly all states, however, annual child care costs exceed the cost of tuition at a public university.

The above three tables is this blog post. Before proceeding, please return to the three above tables. Clearly, the American social welfare system is a phenomenally bad deal for a typical family compared to the social democratic model.

Here's the outline for the rest of this post:
  1. As bad as the American side looks in these tables, it's actually worse than these basic numbers suggest. This is because the American side forces individual households to bear enormous risks in health care, retirement, and long term care. Also, the social welfare services available to a median income American family are of far lower quality than those same social welfare services available to a median income family in the social democracies. If we only look at the raw numbers, we lose sight of enormous financial risk and poor service quality of the American social welfare system.
  2. The research or calculations behind each cell of all three of the above tables.

The horrors of the American long term care system
Long term care refers to health care equipment or services for patients who are grievously injured or very, very sick. These patients will never get better; they will be sick or badly injured until they die, and they will likely die from their injury or illness.

Numbers mislead when comparing the tax systems of the United States with the social democracies

This is part 2 of a two-part series on comparing the tax systems of the social democracies with that of the United States. I was motivated to write on this topic because it has become very fashionable for conservatives to point out that the social democracies tax regressively in order to "debunk" American fans of social democracy--since people who support social democracy tend to also support progressive taxation. Critics use the supposed regressivity of the tax systems in the social democracies to argue that progressive taxation and social democracy are incompatible.

This is wrong for two reasons, and that was the focus of the first post. First, the social democratic system is for the most part very progressive; the confusion stems from the fact that most experts on the American tax system assume that the social democratic system is basically the same as the American social welfare system, only more generous. But that's not true--the social democratic system is a different system entirely.

Second, the social democratic tax system actually is regressive for the richest 1%, who pay a lower tax rate than most of the poorest 99%. Many conservatives would like the conclusion to be that raising taxes on the richest 1% is therefore incompatible with social democracy. However, the richest 1% of the social democracies accounts for under 10% of national income, whereas the richest 1% in the United States accounts for nearly a quarter of national income. If the richest 1% has lower tax rates in the social democracies than the poorest 99%, the welfare state can still be funded because the richest 1% accounts for under 10% of all national income. But in the Untied States, a robust welfare state could not be funded without taxing the richest 1% higher than the social democracies do; they simply control too much of the national income.

I picked on Kyle Pomerleau of the Tax Policy blog not because he was a particularly ill-informed example, but because he was a particularly competent example. Most analysis of the differences of tax systems in the social democracies is so hopelessly muddled that there's nothing to criticize; it's simply all wrong. Pomerleau got a lot of the technical details correct about the social democratic tax system, so lets turn now to that topic.

Income taxes
To begin, Pomerleau notes that taxes and marginal tax rates are higher in the social democracies. True. And the highest tax rates kick in at much lower income levels:
However, the rates are not necessarily the most important feature of the Scandinavian income tax systems. In fact, the United States’ top marginal income tax rate is higher than Norway’s and only 18 percent lower than Sweden’s, yet raises 40 percent less income and payroll tax revenue than Norway and 50 percent less than Sweden.
The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent...Sweden’s top marginal tax rate of 56.9 percent applies to all income over 1.5 times the average income in Sweden. Norway’s top marginal tax rate of 39 percent applies to all income over 1.6 times the average Norwegian income.
Compare this to The United States. The top marginal tax rate of 46.8 percent (state average and federal combined rates) kicks in at 8.5 times the average U.S. income (around $400,000). Comparatively, few taxpayers in the United States face the top marginal rate.
That last paragraph needs a little more perspective. There is almost no one in the United States who pays the top marginal tax rate. Pomerleau notes that the top rate starts around $400,000. The poorest members of the richest 1% don't even make that much:
The average household income of the 1% was $1.2m in 2008, according to federal tax data. The ultra-rich skew that average upwards: admission to the 1% began at $380,000 in 2008.
And furthermore, much of the richest 1% mostly pays capital gains taxes, which are taxed at a much lower rate; the highest tax rate on capital gains is just 20% (and 15% prior to 2013). The richest 1% pay about 20% of their income in taxes, suggesting that income for this group overwhelmingly comes from capital gains. Famously, this means that Warren Buffet's secretary pays a higher tax rate than he does.

It's misleading in the extreme to talk about income taxes in isolation from capital gains taxes--especially if you want to talk about progressivity of tax systems, as Pomerleau clearly does. You can't talk about the supposed progressivity of the American tax system based on income tax rates when the wealthiest Americans don't pay income taxes, instead paying lower (20%) capital gains tax rates. We'll take up the issue of capital gains taxes below.

Comparing median household income in the United States versus the social democracies

Image: Median income and median per capita income of the United States vs. the social democracies (source)

As this graph clearly shows, median household income (blue bars) is pretty similar between the United States and the social democracies. I'm using Gallup World Poll data, and as the authors point out, these data correlate tightly to aggregate wage data. This is a good validation of their results. Per capita household income (orange bars) is simply each household's income divided by the number of people in that household.

Some technical notes:

Just how regressive are the tax systems in the social democracies?

Image: George Stephanopoulos says Bernie Sanders "wants the United States to look more like Scandinavian countries," which may mean that Stephanopoulos believes Sanders has a plan to move the Norwegian fjords to America. (source)

A follow-up post (update: here) will consider how the tax systems of the social democracies differs from the tax system of the United States. Here, I'm going to focus exclusively on the question whether the tax systems of the social democracies are progressive or regressive.

This is a very important question because it's very fashionable among conservatives to argue that because the social democracies tax regressively, progressive taxation is incompatible with social democracy.

But the social democracies do not tax regressively, and it only appears that way because would-be tax policy analysts assume too many similarities between the American and social democratic models for tax and social welfare. Many Americans--experts included--assume that the social democratic model is the same as the American model, just more generous. That is flatly false: the social democratic model for taxation and social welfare is not a more generous American model--it's a different model entirely. Superficial similarities betray experts of the American tax system into making very basic mistakes.

Kyle Pomerleau at the Tax Policy Blog is typical in this regard. I could cite examples all day (here and here, for instance) of professionals making a mess of analyzing the tax systems of the social democracies. I myself have fallen into some these traps before. So don't think that Pomerleau has created some uniquely bad analysis. To the contrary, I'm picking on him because he's assembled a uniquely competent analysis. Most American tax policy wonks who try to characterizing the tax systems of the social democracies make such a mess that it's impossible to criticize what they've written; it's simply all wrong. I can use Pomerleau's post as an example because he manages to get enough things correct that I can fill in missing information. Most other examples are so hopelessly muddled as to be beyond repair. Pomerleau gets the raw numbers right, but fails to understand how the tax systems of the social democracies work.

Here is his very suspect summary statement of the tax systems of the social democracies (emphasis added):
In a recent interview on ABC’s This Week, Presidential hopeful Bernie Sanders reiterated his position that he wants the United States to look more like Scandinavian countries policy-wise:
George Stephanopoulos: “I can hear the Republican attack ad right now: ‘He wants America to look more like Scandinavia.’”
Bernie Sanders: “What’s wrong with that?”
Specifically, Sanders wants the United States to adopt a lot of the spending policies that many of the Scandinavian countries (Denmark, Norway, Sweden) are commonly known to have. Policies such as government sponsored college education, paid parental leave, and universal healthcare.
Many of these new government programs would be expensive and necessitate higher taxes. It is instructive to look at how Scandinavian countries structure their tax systems in order to raise revenue for these programs. Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.

Just how regressive are taxes in the social democracies?
In the above blockquote, I bolded two misleading statements. The first one is very tangential and Pomerleau shouldn't be faulted because he's a tax guy and not a social policy guy. He wrote, "Many of these new government programs would be expensive and necessitate higher taxes." I've spilled much ink on how the American social welfare system is just as expensive as the social democratic model. Aggregate (private plus public) spending on social welfare is basically the same in the United States as the social democracies. It's not a difference in overall cost; it's a difference in how programs are administered and financed. It's a difference of program efficiency and how well the true cost of each system is concealed with out-of-pocket private spending.

The second statement is more problematic:
Interestingly, some of the ways that Scandinavian countries raise revenue may make Sanders, who is a proponent of highly progressive taxation, uncomfortable.
Pomerleau later calls the tax systems of the social democracies "actually rather flat." That's wrong--but before we can continue, we have to be a little bit more specific of what we mean by tax progressivity.

As I pointed out with inequality measures (specifically the Gini coefficient) and gender discrimination, when studying things that affect all society, there can be no single measure that accounts for everything. In particular, the Gini sometimes gives nonsense conclusions, simply because it quixotically attempts to characterize an entire income distribution. Tax progressivity measures are the same: they also attempt to measure an entire income distribution are thus also create nonsense conclusions.

If the rich pay the highest tax rate but the poor pay a higher rate than the middle class, is this a progressive tax system? Or would it be better to say that some parts of the tax system are progressive and some parts of the tax system are regressive? Clearly--as with inequality--we need to look at multiple measures; a single measure will not suffice. We can never say that one tax system is more progressive than another. We are limited to claiming only that certain aspects of one tax system are more progressive or regressive.