Is the Canadian Middle Class Doing Better than the American Middle Class?

The New York Times made a splash last week with an analysis that purportedly shows that the U.S. middle class is declining relative to the middle class in other countries. Especially, the data make it look like Canadian median income surpassed U.S. median income in 2010, when U.S. median income was $18,700.

This analysis shares a weakness with similar studies: It measures cash disposable income but does not include in-kind benefits. For both Canadians and Americans, health care makes up the biggest share of those benefits. Although the Times article discloses this weakness, it also makes a somewhat misleading statement about sales taxes and health benefits in the two countries:

The definition does not include sales taxes or noncash benefits, such as health care provided by a government or employer. (Americans tend to face lower than average sales taxes, but they also receive less comprehensive health benefits and thus must use more of their disposal income on health care.)

First, the difference in sales taxes is important enough that it should be measured as a reduction in disposable income. Because both the Canadian federal government and provincial governments levy these taxes, the combined rate is much larger than in the United States. In Ontario, Canada’s largest province, the combined sales tax rate is 13 percent.

Second, the statement that Americans receive “less comprehensive health benefits” is surely incorrect. Although perhaps true for Medicaid or Obamacare clients, Americans with employer-based health benefits or Medicare receive significantly more “comprehensive” health benefits than do Canadians. On average, a Canadian patient waits 18.2 weeks between referral from a primary-care doctor to treatment by a specialist. This imposes a cost of over one thousand dollars per person in lost hours. Canadian patients also have significantly worse access to innovative prescription drugs, which imposes a measurable cost in loss of life.

Although in-kind benefits are more difficult to compare across countries than are cash incomes, they must not be ignored when making judgments about how different countries’ middle-class residents are faring.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

John R. Graham is a former Senior Fellow at the Independent Institute.
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