The idea that taxes are too high is burned into the American consciousness. It is the cornerstone on which the entire nation was founded and remains the main point of contention between taxing authorities. Nobody likes paying taxes. And everyone believes that the taxes we do pay are spent inefficiently by government.
Ever since the English House of Commons first imposed taxes on colonial settlers to pay for the troops sent to fight the French and Indian War in the 1750s, this bristling over taxes has been going on. It could be argued that this bristling gave birth to the new nation.
It seems reasonable (if a bit simplistic) that a comparison study about the cost of government in similar nations might begin to instruct on whether or not Americans are getting a reasonable bang for their tax buck. The broadest possible measures for comparison look at the percentage of goods and services (Gross Domestic Product [GDP]) devoted to governmental uses between similar countries.
Statistics that measure GDP, tax collections and the compositions of each are reported to a voluntary international organization called the OECD, Organization for Economic Cooperation and Development. The OECD represents 34 advanced economy member nations of which 30 report their tax collections and GDPs. OECD members include the United States, most of Europe, the former British Commonwealth countries, Turkey, Mexico, Chile, Japan, and Korea. In short, OECD members are the nations whose standards of living most resemble the United States.
Surprisingly, total US tax collections are very, very, low when compared to the OECD median. All US taxing entities collected 25.4 percent of GDP in 2013. The OECD median tax collection was 34.1% of GDP. Only three of the 30 reporting countries, Mexico, Chile, and Korea spend a lower percentage of GDP on government than the United States.
These are among the findings just released in the 2014 OECD International revenue study. It shows that tax burdens rose in 21 of the 30 countries for which data is available, and fell in the remaining 9.
The largest increases in spending occurred in Portugal, Turkey, Slovak Republic, Denmark and Finland. The largest spending declines were in Norway, Chile and New Zealand.
A number of factors are behind the rise in tax ratios between 2012 and 2013. About half of the increase is attributed to personal and corporate income taxes, which are typically designed so that revenues rise faster than GDP during periods of economic recovery. Discretionary tax changes have also played a role, as many countries raised tax rates and/or broadened tax bases.
The new data also show rising revenues in central, state and regional governments between 2011 and 2013 following declines over most of the 2008-10 periods. The average tax ratio for local governments increased slightly but steadily since 2007.
• Denmark has the highest tax-to-GDP ratio among OECD countries (48.6%), followed by France (45%) and Belgium (44.6%).
• Mexico (19.7%) and Chile (20.2%) have the lowest tax-to-GDP ratios among OECD countries, followed by Korea (24.3%), and the United States (25.4%).
• The tax burden remains more than 3 percentage points below the 2007 (pre-recession) levels in three countries – Iceland, Israel and Spain. The biggest fall has been in Israel – from 34.7% in 2007 to 30.5% of GDP in 2013.
• Revenues from personal and corporate income taxes are now recovering, after the sharp falls of 2008 and 2009. However, the 33.6% share of these taxes in total revenues seen in 2012 – the last year for which full data is available – remains below the 36% share in 2007. The share of social security contributions has increased by 1.6 percentage points, to an average 26.2% of total revenue.
It is difficult to argue that Americans pay too little in taxes. There is certainly waste in government at all levels. But a quick analysis of what others pay on average screams for a more thoughtful approach to trimming the excesses. Perhaps tax policy requires a delicate surgery more than chainsaw sculpture approach to cost cutting.