The U.S. Spends More on Social Services Than Many Other Countries

Which country spends more money on social services: the United States, or Sweden?

Turns out, it’s the U.S. As Slate reports:

If you add up all of our public and private expenditures, the United States actually devotes more of its economy to general government activity and basic social services than much of Europe, including social-democracy darling Sweden. And it’s mostly because of our giant outlays on private health care.

This is from a new study by Jacob Funk Kirkegaard at the Peterson Institute for International Economics, appropriately titled “The True Level of Goverment and Social Expenditures in Advanced Economies.” As Kirkegaard puts it:

Taking the full effects of tax systems and social spending from both private and public sources into account, the United States is seen to be devoting more resources toward social purposes than is generally acknowledged. In fact, only the French spend more than Americans, while the alleged welfare-addicted Scandinavians and Europeans spend less on average.

Why do we spend so much more while receiving what feels like so much less? Slate suggests it’s in part because our health care system “wastes hundreds of billions of dollars every year on bad care, excessive treatments, and fraud, among other issues.” Has this changed since the Affordable Care Act? I’m guessing not, since the ACA just gave more people the opportunity to purchase insurance while the rest of our health care system remained relatively unchanged.

Here’s another way of looking at it, from Kirkegaard:

Total net after-tax social spending in the United States is consequently 3 percentage points of GDP higher than the EU-21 average and 7 to 8 percentage points of (a relatively larger US) GDP higher than the non-US OECD average. The US “welfare state” might be relatively small, but that doesn’t mean that total social spending is low in the United States, just that it takes the form of nonredistributive private social spending relatively more than in other advanced economies.

I had to look up “private social spending,” and here’s a definition from the Organisation for Economic Co-operation and Development (OECD):

Private social expenditure concerns social benefits delivered through the private sector (not transfers between individuals) which involve an element of compulsion and/or inter-personal redistribution, for example through the pooling of contributions and risk sharing in terms of health and longevity. Pensions constitute an important part of both public and private social expenditure. Private pension payments can derive from mandatory and voluntary employer-based (sometimes occupational and industry wide) programmes (e.g. in the Netherlands or the United Kingdom), or tax-supported individual pension plans (e.g., individual retirement accounts in the United States).

If I understood that correctly, our social spending is in part so high because we are funding our own social spending through 401(k)s and the like. The United States doesn’t devote this big chunk of its economy to social spending; its citizens do.

And, also, you know, healthcare. Always, always healthcare.

Photo credit: Peter-Ashley Jackson

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