Lane Kenworthy has an excellent post on the tricky methodological questions that arise when you try to compare the actual size of the 'welfare' state in social-democratic countries versus the United States:
Government social transfers account for a much larger share of GDP in Sweden and Denmark. But the U.S. government distributes more benefits in the form of tax breaks rather than transfers than do the two Nordic countries; Denmark and Sweden tax back a larger portion of public transfers than the United States does; private social expenditures, such as those on employment-based health insurance and pensions, are greater in the U.S.; and America’s per capita GDP is larger.
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Researchers count as “social” [tax breaks which are] designed to provide support in circumstances that adversely affect people’s well-being. In the United States these disproportionately go to the affluent and the middle class. The chief ones are tax advantages for employer and employee contributions to private health insurance and private pensions. These do little to help people at the low end of the distribution, who often work for employers that don’t provide health or retirement benefits. One valuable tax benefit for low-income households is the Earned Income Tax Credit (EITC), but it is already included in the standard OECD data on government social expenditures. Another is the child tax credit, but it is non-refundable and so of limited value to low-income households, many of whom don’t owe any federal income tax.
Next consider tax “clawbacks” in the Nordic countries. Public transfer programs in Denmark and Sweden tend to be “universal” in design: a large share of the population is eligible for the benefit. This is thought to boost public support for such programs. But it renders them very expensive. To make them more affordable, the government claws back some of the benefit by taxing it as though it were regular income. All countries do this, including the United States, but the Nordic countries do it more extensively. Does that hurt their poor? Very little. The tax rates tend to increase with household income, so much of the tax clawback hits middle- and upper-income households.
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