This is the reality of European-style social spending

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This is the reality of European-style social spending
By The Editorial Board
May 25, 2026

Imagine you’re a single American worker earning an average wage. The total your employer spends to compensate you: about $79,000.

You don’t receive all of it. Government takes a “tax wedge” of about 30 percent.

On your paycheck, this appears as your income tax ($12,000), employer social security contribution ($6,000) and employee social security contribution ($6,000). The remainder is your take-home pay.

Americans look longingly at Europe, where many countries have relatively high social spending, and dream of bringing that system to the United States. U.S. politicians, aware of this desire, campaign on two falsehoods.

First, that the U.S. government does not already spend massively on pensions and health care. Second, that the only obstacle to bringing a European-style welfare state to the U.S. is a lack of taxes on the rich.

The reality is more complicated, and growing America’s tax wedge brings serious risks in and of itself.

Some of the other wealthy countries in the world do indeed have more robust safety nets than America. Yet they don’t rely on narrow taxes on their most wealthy citizens; rather, they’re financed by broad levies on the middle class.
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The leaders of too many OECD countries have overpromised, and now they’re targeting income because it’s easy to tax and guaranteed to bring in consistent revenue. Some countries have avoided increasing tax rates, but by not adjusting income thresholds to reflect inflation, they drag more workers into higher brackets.

Doing this is not free of consequences. The OECD report finds that the tax wedge grew in 24 countries compared with 2024, contracted in 11 and held steady in three. In 13 of the countries where the tax wedge grew, it was a direct result of a rising personal income tax as a percentage of labor costs.

Of the 11 countries where the tax wedge fell, nine cut their personal income taxes, including Australia, Denmark, Iceland, Ireland, Italy, Latvia, Portugal, Sweden and the United States.
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The U.S. helps pull down the OECD average. America’s tax wedge is the lowest of all advanced economies in the Group of Seven.
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It’s also worth noting that about half of federal spending in the U.S. goes to pensions and health care. Despite spending like some European countries, America keeps taxes low by running deficits.

Being the global reserve currency helps hide fundamental problems with this arrangement, but America’s relatively low tax regime is not sustainable if politicians don’t get sober about spending. The U.S. national debt, over $39 trillion, has surpassed 100 percent of gross domestic product, an ignominious milestone.

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