America's Redistributive Welfare State

As part of a recent study on income disparities, Thomas Blanchet, Lucas Chancel, and Amory Gethin of the World Inequality Lab at the Paris School of Economics found that the United States “stands out as the country that redistributes the greatest fraction of national income to the bottom 50 percent.” This is not the American welfare state’s traditional reputation and seems to have come as a surprise to the left-leaning authors. How can it be so?

Government spending accounts for a smaller share of national income in the United States (35 percent) than in Europe (47 percent), but rates of public spending on education, health care, and benefits for the poor and disabled are similar. The greater cost of government in Europe results largely from its spending 11 percent more of national income on public pensions than the United States—which serves to crowd out private pensions that higher earners would have provided for themselves. To finance these state pensions, Europe imposes payroll and sales taxes at rates twice as high as in the United States. These additional taxes fall heavily on lower-income groups—making government bigger, while imposing higher costs on the poor.

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