8 Dec 2015

The U.S. is a low-tax country. That’s right. The U.S. is a low-tax country, at least compared with about 30 other mostly developed economies

The U.S. is a low-tax country. That’s right. The U.S. is a low-tax country, at least compared with about 30 other mostly developed economies.
The latest cross-country comparisons show that U.S. governments collected 26% of gross domestic product in revenue in 2014, well below the average of 34.4%, according to data released recently by the Organization for Economic Cooperation and Development.
The U.S. number includes federal, state and local taxes and is higher than only South Korea, Chile and Mexico, among the 30 countries for which data is available. By comparison, the world leader, Denmark, now collects more than half of GDP in tax revenue, and large economies such as the U.K., France, Germany and Italy are all well over 30%.
“We’re an outlier, and you would never know it with antitax fervor,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington group that advocates policies to assist low-income families. The stats show that the U.S. has room to increase taxes to expand the social safety net and handle the aging of the baby-boom generation, Mr. Marr said.
So how is it that the U.S. has low taxes and U.S. companies and individuals still complain about high taxes? VAT’s what it’s all about. Every other country in the OECD uses a value-added tax, or VAT, to supplement other revenue sources and on average, those taxes raise 6.8% of GDP. Without a VAT, the U.S. must rely more heavily on other taxes.
That’s not going to change any time soon. The two Republican candidates who have proposed a VAT –Ted Cruz and Rand Paul–suggested doing so to replace the corporate income and payroll taxes and as part of plans that reduce the U.S. tax take by trillions of dollars over the next decade.
“It’s more likely that lawmakers are going to reduce revenues than raise them in the years ahead,” says Alan Cole, an economist at the Tax Foundation, which favors a simpler, flatter tax code. “In other words, it doesn’t seem like anyone is in any hurry to bring us towards the OECD average.”


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