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9/20/15

Welfare US Spends Far More on Social Welfare Than Most European Nations - by Robert Rector

The U.S. Census Bureau has released its annual poverty report. Conventional wisdom holds that the U.S. has a small social welfare system and far more poverty compared with other affluent nations.

But noted liberal scholars Irwin Garfinkel, Lee Rainwater, and Timothy Smeeding challenge such simplistic ideas in their book “Wealth and Welfare States: Is America a Laggard or Leader?”

Garfinkel and his colleagues examine social welfare spending and poverty in rich nations. They define social welfare as having five components: health care spending, education spending, cash retirement benefits, other government cash transfers such as unemployment insurance and the earned-income tax credit (EITC), and non-cash aid such as food stamps and public housing.

The authors find that in the U.S., social welfare spending differs from that in other affluent countries because it draws heavily on both public and private resources. By contrast, in Europe, government controls most of the resources and benefits. For example, in the U.S., government health care spending is targeted to elderly and low-income persons; the American middle and working classes rely primarily on employer-provided health insurance.

The U.S. government health care system is, therefore, more redistributive than the systems of most other developed nations.

Elderly middle-class Americans are also more likely to have private pensions than are Europeans. Middle-class parents in the U.S. pay for much of the cost of their children’s post-secondary education; in Europe, the government pays. Overall, in Europe, the upper middle class is heavily dependent on government benefits; in the U.S., it relies much more on its own resources.

But even setting aside the private sector, the U.S. still has a very large social welfare system. In fact, among affluent nations, the U.S. has the third highest level of per capita government social welfare spending. This is striking, given that government spending in the U.S.  is more tightly targeted to benefit the poor and elderly.

When private-sector contributions to retirement, health care, and education are added to the count, social welfare spending in the U.S. dwarfs that of other nations. In fact, social welfare spending per capita in the U.S. rises to nearly twice the European average. As Garfinkel, et al. conclude:
For those who believe the absolute size of the US welfare state is small, the data presented … [in the book] are shocking and constitute a wake up call. Once health and education benefits are counted, real per capita social welfare in the United States is larger than in almost all other countries!
Only one nation (Norway) spends more per person than the U.S. spends.

How much of this spending reaches the poor? The left often claims that the U.S has a far higher poverty rate than other developed nations have. These claims are based on a “relative poverty” standard, in which being “poor” is defined as having an income below 50 percent of the national median. Since the median income in the United States is substantially higher than the median income in most European countries, these comparisons establish a higher hurdle for escaping from “poverty” in the U.S. than is found elsewhere.

Read more: US Spends Far More on Social Welfare Than Most European Nations

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