The other day I did some math to figure out the real cost of taxes and social security in Germany. Here is what I got for an average worker with a monthly gross income of 2’500 euro:
The employer has to pay 496.- euro in social security contributions. (As explained recently, this is paid by the employer but borne by the employee.)
Then there is 518.- euro in social security contributions to be paid by the employee, as well as 206.- euro in taxes (income, church, solidarity).
Overall the employee creates more than 3’000 euro in value. This is because the employer would not hire her if the total labor cost exceeded the value created. But out of the 3’000 euro, the employee only gets about 1’775 euro transferred to her bank account. That is, the average worker in Germany with a decent monthly income pays 34% of her value added to social security, 7% is deducted by taxation, and only 59% appears on her bank account. And of course this is only the direct taxation: if she decides to take that money from her bank account and buy something, the usual VAT is 19% (or 7% on food).
The bottom line is that even if you only have a decent income, in Germany more that 40% of your value added is confiscated by the government.
Where I live in the US, I pay 25% Federal taxes, 7% State Taxes, and 8% sales tax (depending on what part of the state I am in).
So around the same 40% is taken from my earnings, and I have to go out and buy private health insurance which could easily eat up another 10 -15%. So when I look at the differences between me and the German worker, I envy the German worker a little bit.
Thanks for your comparison. Let me add another country: In Switzerland with an income of, say, $3’500 you pay about 2×7% for social security, about 7% in taxes, and $250 for private health insurance.
And neither is the Swiss state bankrupt nor is the public infrastructure in such a terrible shape as in Germany or the US. Oh, and unemployment is below 3%.
For some reason the Swiss always seem remarkably clear headed about things. I think things would be better in the US if there wasn’t the no compromise/tea party faction of the Republican party. It’s impossible to do anything long term or meaningful if one side sees compromise as nonnegotiable. (An immense tome could be written about the Republican/Tea Party dynamic and how the nomination process works in the fringe voters favor, but to the party majority’s disadvantage. One need only look at the candidates the Republicans had up for President. Only Romney and Huntsman could be labeled serious candidates, and the gripe with them was that they were too centrist.)
I don’t see anything meaningful happening here until the one-upsmanship goes by the wayside and the greater good becomes more important. Alas, that is the biggest problem with our two party system. No coalitions need be formed when it’s an us against them dynamic. Until more parties rise up to break the two party strangle hold, I fear not much will change.
That was a lot of rambling 😉 but my point really is, the US could turn things around if the politicians were more interested in working together to come up with solutions than they were with posturing and preparing for their next election.
I feel the recession will drag, unemployment will remain high, and a realistic revenue/spending cut balance will remain out of grasp for a very long time unless some serious consequences come to a head and force their hands.
Politicians will follow their incentives no matter what. Thus the important question is how institutions must be shaped so that officials do less harm. The US once had a working system but – to quote Thomas Sowell: “Much of the social history of the Western world over the past three decades has involved replacing what worked with what sounded good.”
No doubt the 16th and 17th amendment have shifted more power to the federal level. This is one of the main reasons why the whole political system started stuttering. The US was built as a nation consisting of 50 independent states. They cooperate when it comes to national security or the police and judicial system. But apart from those limited fields, each state should be on its own. To a large extent this is how Switzerland has been working for 200 years. Unfortunately, politicians have an incentive to concentrate power and to centralize government control. The whole erosion of the Constitution describes this process in the US.
And I agree with you, the GOP is not led by people who want to repeal mistakes of the past.