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Wednesday, October 5, 2016
American Taxes Compared to Other Countries
Conservatives often say that America is one of the
highest-taxed nations in the world. My
father recently told me this. Donald Trump also said the same thing in the same words in his acceptance
speech at the Republican National Convention.
If this were true, it would be a problem worthy of examination and serious discussion. The problem is that it isn’t true. It isn’t remotely true. America is one of the lowest-taxed nations in
the world. If it were true that America
is a highly-taxed country, it should have a reasonable influence on American
tax and spending policies. We might
infer that the United States government is inefficient, compared to other
countries. We might want to focus on
cost-cutting, instead of raising revenue to close our fiscal deficit. But it isn’t true.
Let’s look at the data.
OECD Federal Tax
The Organization for Economic Cooperation and Development is
a group of thirty-four countries, which includes all of the Western
industrialized economies. The
organization gathers comparative economic data from all member countries. Tax rates represent tax revenue from all
sources, including businesses and individuals. Taxes include individual income taxes, business income taxes, and all other taxes, including sales taxes, value-added taxes, excise taxes, import/export taxes, natural resource royalties and production taxes. Tax rates are measured in terms as a percentage of GDP, which is the
standard measure of the tax burden across several sources. The data is available here: http://stats.oecd.org/Index.aspx?DataSetCode=REV
The United States Federal tax rate is second-LOWEST of the
OECD, at 10.5% in 2013 (the latest year with complete reporting). Only Switzerland, at 9.5%, has a lower
Federal tax rate. The United States’
Federal tax rate would have to approximately double to reach the average tax
rate for the rest of the OECD.
The US tax rate has been consistently among the lowest of
the OECD for years. The following chart
shows federal taxes for all OECD countries from 2008 to 2013.
OECD Total Tax
The OECD also maintains records for the total tax burden for
member countries. Total taxes include
Social Security (or equivalent) taxes, State and Regional taxes, and Local
taxes, also measured as a percentage of GDP.
The United States total tax burden is fourth-lowest of the 34 OECD
countries, behind South Korea, Chile and Mexico.
The United States total tax burden is 25% of GDP; the OECD
average (ex-US) is 34%. The United
States total tax burden would have to increase 35% to reach the average total
tax burden of the rest of the OECD.
The US total tax rate has also been consistently low for
years. The following chart shows total
tax burden from 2008 – 2013.
World Federal Tax
The World Bank is an alternative source of tax data,
including data from most nations on earth.
Only Federal or central authority tax data are available. For the year 2011 (the recent year with the
most complete reporting), the United States had the fourteenth-lowest Federal
tax rate in the world.
The list of countries
with lower taxes than the United States is as follows:
Ethiopia, Pakistan, India, Afghanistan, Bangladesh, Central
African Republic, West Bank and Gaza, Lithuania, Oman, Nigeria, Bahrain,
Estonia, United Arab Emirates.
From 2009 through 2011, the United States had the lowest tax
rate in the OECD, so no OECD countries appear in this list.
The time series data is a fairly messy chart, because of the
number of countries included in the plot, but it is clear that the United
States has consistently had among the lowest Federal tax rates in the world.
Taxation is one thing.
Government spending is another thing.
Data on Federal Government expenses are available from the World Bank. As of 2011, the United States is eighth
lowest of the 34 OECD countries in terms of Federal spending as a percentage of
If we assume that all countries federal governments are performing
equally relative to the size of their economies, then those with the highest
expenses (Portugal, Austria, Hungary, New Zealand, Greece) would be the least
efficient. The countries with the lowest
expenses (Switzerland, Canada, South Korea, Japan, Spain, Chile, United States)
would be considered the most efficient.
But I think it can be argued that the United States’ federal
government is doing more than many other governments in terms of infrastructure,
scientific research, environmental protection, etc. Further, as of 2013 the United States is
spending more than the next nine countries combined, accounting for 40% of the
world’s military spending. Military
spending consumes over 50% of the nation’s $1.1 trillion-dollar discretionary budget. Considering the burden of military spending,
it is apparent that the United States Federal Government performs the remaining
functions of government very efficiently.
1) It is simply not
true that the United States is one of the most highly-taxed countries in the
world. Our Federal tax burden and our
total tax burden are among the lowest in the world.
2) The United States
government does a lot of things that make its citizens safe, things that cannot
be done by individual contributions. These
things cost money. America would be a
terrible country if the government stopped doing these things.
3) Over half of the discretionary budget goes to the
military, leaving less than half to do everything else. What the government does with the rest of the
money is very efficient by comparison to other countries.
4) We’ve had a
35-year experiment in systematic under-taxation. Perhaps we’ve had more economic growth as a
result. Perhaps government is more
efficient as a result. But we are
stealing from our children by continuing to run deficits. It isn’t fair and it isn’t right. We need to raise taxes and pay our bills.
5) The tax
revenue/GDP parameter is a way to measure fairness. If an American is paying 10% of gross income
in Federal tax (not including Social Security and Medicare payroll taxes),
including all unrealized and deferred capital gains (401k, IRA), then they are
pulling their weight. But due to the
complexity of the tax system, it is not clear who is pulling their weight and
who is not, and there is a widespread perception that the system is unfair.
I think most Americans would agree that we should reform our
tax system to make it simpler, more transparent, and give all taxpayers
confidence that the system is fair.
A version of this post also appears on the blog Debatably Political, located at this URL: