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.


Philip Greenspun’s Weblog

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