Taxes Are Low in the U.S., But Other Stuff Is Expensive

Higher education and health care are glaring examples.

That's not how this works, guys.

Photographer: Saul Loeb/AFP/Getty Images

The Organization for Economic Cooperation and Development's annual compendium of revenue statistics is out, 1  and the U.S. again ranks quite low in overall tax revenue as a percentage of gross domestic product.

Tax Burdens, Ranked

National, state and local taxes as a percentage of GDP, 2016*

Source: Organization for Economic Cooperation and Development

*Data for Australia and Japan from 2015

The OECD is the club of the world's developed nations, and the U.S. has the fifth-lowest tax burden among its 35 members. In other words, this is nowhere near "the highest-taxed nation in the world," as President Donald Trump has said again and again over the past year-plus. 2

But as lots of readers pointed out to me when I wrote about last year's tax burden rankings, a lower tax burden doesn't necessarily leave Americans with fuller bank accounts than their counterparts in other affluent countries. That's because services that elsewhere are mostly covered by tax bills are paid for differently in the U.S. The two that spring to mind as most significant are education and health care. 3

U.S. spending on primary and secondary schools actually isn't much of an OECD outlier (as a share of GDP), and neither is the percentage of that spending that comes from private sources. But for colleges and universities, the story is different. Spending on tertiary education accounted for 2.7 percent of GDP in the U.S. in 2014, much higher than in any other OECD country, and private sources accounted for a bigger share of that spending in the U.S. than in all but three other OECD countries. That's 1 to 2 percent more of GDP flowing into higher education from non-tax sources in the U.S. than in other affluent nations.

If you added that to the U.S. tax burden, it wouldn't dramatically shake up the rankings. But for undergraduates (or their parents), the burden is of a scale pretty much unheard of elsewhere in the world.

Big College Bills

Annual undergraduate tuition fees for full-time national students*

Source: Organization for Economic Cooperation and Development

*Converted into U.S. dollars by purchasing power parity. Data from 2016 for Korea; 2015/2016 for Canada, Japan, Netherlands, Sweden; 2014/2015 for Australia, Italy, Switzerland; 2013/2014 for Israel; 2011/2012 for U.S.

So that's clearly one reason some Americans might think their low tax burden isn't such a great deal. Another -- much bigger -- reason is the cost of health care. The U.S. spent 17.2 percent of GDP on health care in 2016, far and away the highest percentage in the OECD (Switzerland was in second place, at 12.4 percent; the OECD average was 9 percent). And while even government spending on health care in the U.S. is on the high end by OECD standards, it is private health-care spending 4 here that really has no peer in the developed world. 

Expensive Health Care

Voluntary health insurance and out-of-pocket payments as share of GDP

Source: Organization for Economic Cooperation and Development

Data from 2016

So the U.S. puts in private hands activities that in most other affluent countries are managed by government. That's no surprise. What is curious is that those activities cost so much more in the U.S. than in other places.

It's possible this extra spending buys higher-quality services -- an argument that's easier to make for higher education than for health care, although there are question marks even there. But the net result is that while the tax burden in the U.S. is relatively low, U.S. taxpayers are burdened by other inevitable or near-inevitable expenditures that their counterparts in other wealthy countries don't have to worry about. Those taxpayers have a right to be cranky about this, and it doesn't really seem like the modest tax cuts for individuals that Congress is contemplating will do much to reduce their crankiness.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. It was released the morning of Thanksgiving.

  2. Trump clearly got this idea from the fact that the U.S. statutory corporate tax rate is almost the world's highest. But (1) that's not what he says and (2) when it comes to actual taxes paid as a percentage of GDP, U.S. corporations pay less than the OECD average.

  3. I thought about looking at pensions here, too, but that gets really complicated really quickly. Plus, the U.S. retirement savings system comes off as just about average in the 30-country Melbourne Mercer Global Pension Index ranking, which aims to measure the adequacy, sustainability and integrity of national retirement systems.

  4. The OECD terminology here is "voluntary schemes/household out-of-pocket payments," which are defined as "voluntary health insurance and private funds such as households’ out-of-pocket payments, NGOs and private corporations." Since the passage of the Affordable Care Act in 2010, buying health insurance in the U.S. hasn't been an entirely voluntary act, but the OECD still counts U.S. private health insurance in that category.

To contact the author of this story:
Justin Fox at

To contact the editor responsible for this story:
Brooke Sample at

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