One common belief among conservatives is that we are overtaxed in the United States. In fact, this was one of the rationalizations the Republican Party used to justify the tax cut it passed in 2017. But if you look at the numbers, this claim simply does not hold up.
The Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic organization with 36 member nations, produces an annual report that lists various statistics, including taxes for each member nation as a percentage of gross domestic product (GDP). The comparative statistics are enlightening. For 2017 (the most recent year on record), total taxes collected in the United States (for all levels of government) amount to 27.1 percent of GDP. This may seem like a lot. But the average for all 36 OECD nations was 34.2 percent. So we are far below average (20.7 percent below, actually).
But the average figure may be misleading. If we look at a few countries that are more representative of our level of development, the difference is even more stark. For example, Denmark’s taxes amount to 46.0 percent of GDP; Austria, 41.8; Belgium, 44.6; Canada, 32.2; Finland, 43.3; France, 46.2; Germany, 37.5; Italy, 42.4; Netherlands, 38.8; Norway, 38.2; Sweden, 44.0; and the United Kingdom, 33.3. The average of these 12 countries is 40.7 percent of GDP, or 50 percent higher than the U.S. That gap will likely increase for 2018, the year the GOP tax cuts for the wealthy and for corporations took effect.
So, to claim we are overtaxed is to buy into a harmful fantasy. We are going to be racking up trillion-dollar deficits in the coming years, because half our population believes misinformation. Of course, all these other countries get a lot more for their tax dollars. Each citizen has health care, and their social safety nets are far superior to ours. If we were to increase out tax revenue even to the average of all OECD countries, we would bring in an additional $1.37 trillion each year. This would wipe out our annual deficit and contribute significantly to, say, providing health care for all Americans. If we were to match the 12 more developed countries, we would bring in an additional $2.71 trillion dollars per year.
The OECD statistics break down tax revenue into several categories; this is also informative. In the United States in 2017, 40.3 percent of our tax revenue came from individual income taxes, 7.6 percent from corporate taxes, 24.0 percent from social security contributions, 11.1 percent from property taxes, and 16.9 percent from other consumption taxes.
Other countries use various strategies. France collects 18.8 percent of its taxes from the individual income tax, 4.5 percent from corporate taxes, 36.8 percent from social security, 9.4 percent from property taxes, 15.2 percent from value-added taxes, 9.2 percent from other consumption taxes, and 6.2 percent from other miscellaneous taxes. Denmark collects 53.5 percent from individual income taxes, 5.8 percent from corporate taxes, 0.1 percent from social security contributions, 4.0 percent from property taxes, 20.4 percent from value-added taxes, 11.6 percent from other consumption taxes, and 4.5 percent from other miscellaneous taxes.
Significantly, the United States is the only country in the OECD that does not collect a value-added tax (VAT). Yes, this tax is passed along to the customer, but according to the Tax Policy Center, a VAT “is relatively easy to administer, and, unlike an income tax, does not impinge on household saving and business investment choices.”
What is obvious is that we need serious tax reform, but not the sort of faux reform the GOP gave us in 2017. We need to increase our tax revenue, not decrease it, and we should seriously consider joining the rest of the developed world in implementing a value-added tax.
The trajectory of our economic inequality is unsustainable. We therefore need to consider returning to pre-Reagan tax rates, with a top marginal rate of 70 percent or more. With post–World War II rates, we paid down our war debt, rebuilt Europe, put a generation of GIs through college, fueled a postwar economic boom, and, guess what? The rich still got richer.
Roger Terry is a writer and editor who resides in Orem. He has been writing about economic insanity for the better part of three decades.