Paid parental leave. Free daycare. Tuition-free university education. Comprehensive in-home assistance for the elderly. And, of course, universal healthcare. How do all those rich Europeans do it? In a word: taxes. Check it out:
On average, the above Europeans governments collected around 40% of their respective GDPs as taxes in 2018. In contrast, tax revenues were just 27% of GDP in the US.
Next question: who’s paying the taxes in these high-tax countries? Short answer: just about everyone. But aren’t the rich paying a whole lot more? Short answer: no. Check it out:
While the top personal income tax rate is quite high in many of these rich European countries (e.g., 57% in Sweden), the top rate kicks in at relatively low levels of income. For instance: under $100,000 for all the Nordic countries. That’s not soaking the rich; it’s soaking the upper-middle class and above.
Actually, when you consider all tax types, the tax systems in many rich European countries are relatively regressive compared to the US system. This chart adds a piece to that puzzle:
High taxes on goods and services are regressive because lower income households spend more of their income on goods and services than do affluent households.
Bottom line: the European countries with generous social welfare benefits have a much broader tax base than the US. Everyone pays, everyone gets. Not a bad system. Here’s a nice description of how the system works in the Scandinavian countries:
“… the unique combination of free market capitalism and social benefits that have given rise to a society that enjoys a host of top-quality services, including free education and free healthcare, as well as generous, guaranteed pension payments for retirees. These benefits are funded by taxpayers and administered by the government for the benefit of all citizens. The citizens have a high degree of trust in their government and a history of working together to reach compromises and address societal challenges through democratic processes. Their policy makers have chosen a mixed economic system that reduces the gap between the rich and the poor through redistributive taxation and a robust public sector while preserving the benefits of capitalism.” - James McWhinney/Investopedia Updated Jun 25, 2019
Notice the “history of working together to reach compromise” and the “robust public sector” that preserves “the benefits of capitalism”. These countries accept market forces as part of the formula for success, along with responsive and efficient government. They’re also known for tweaking their policies and programs when results disappoint - thanks to a more pragmatic and less ideological mindset.
Reference:
Revenue Statistics 2018/OECD. https://www.oecd.org/tax/revenue-statistics-2522770x.htm