How Private Medical Costs Push Up The U.S. `Tax' Rate

Just how lightly taxed are Americans? Comparative data show that the U.S. tax bite is just 32% of gross domestic product, a bit below Japan's 34% and far below the 41%-to-47% levels in the five other Group of Seven nations. But economist David D. Hale of Kemper Financial Services Inc. points out that this doesn't reflect the fact that the private sector in the U.S. picks up the tab for 57% of health-care expenditures--more than double the percentage in its major industrial rivals, all of which have national health systems.

Since private-sector health-care outlays are hardly discretionary for sick people, Hale argues that such expenditures should be regarded as an implicit tax--an adjustment that raises the total U.S. "tax" burden to 40% of GDP. That's higher than Japan's 35.8% and closer to the 43%-to-49% ratios found in the other G-7 nations.

Looked at this way, the implicit U.S. tax burden is not only far larger than first appears but is likely to get even bigger when uninsured Americans are provided with health coverage. "The key question in coming years," says Hale, "will be whether this implicit tax, which has been growing far more rapidly in the U.S. than overseas, can be brought under control by health-care reform."