Friday, April 10, 2009

Undertaxed America

Prompted by the recent trend of anti-tax tea parties, Bruce Bartlett writes in Forbes that the United States is a low tax country ("Tax Tea Party Time?"):

The truth is that the U.S. is a relatively low-tax country no matter how you slice the data. The following tables illustrate this fact by comparing the U.S. to other members of the Organization for Economic Cooperation and Development, a Paris-based research organization.


[T]otal taxation (federal, state and local) amounted to 28% of the GDP in the U.S. in 2006. Only four of the 30 OECD countries had a lower tax ratio. Taxes averaged 35.9% for the OECD as a whole and 38% in Europe. Citizens of Denmark and Sweden paid very close to 50% of their total income in taxes.

I suspect that the complexity of the tax system in the U.S. partly explains why many Americans think they pay higher taxes than they actually do. Also, it's possible that many workers pay more attention to the large amount of taxes that are withheld from their paychecks and pay less attention to the amount that gets refunded to them every year. Bartlett goes on to note that higher taxes in many OECD countries are offset by generous transfer payments. He also notes the effect of government health care spending:

Another way that workers in other countries benefit is in having almost all of their basic health care expenses covered by the government. According to the OECD, 19 of its 30 member countries cover 100% of health care costs, and another eight cover more than 89% of costs. Of the three remaining countries, Turkey covers two-thirds of health expenses, and Mexico pays for half.

In the U.S., however, the government covered only 27.4% of health costs in 2006. And almost all of that went either to the elderly in the form of Medicare or the poor in the form of Medicaid. The American average worker either had to pay for his own insurance in the form of deductions from his pay or go without.

In 2008, employer-provided health insurance reduced the cash wages of American workers by 7.9%, according to the Bureau of Labor Statistics. If businesses didn't have to pay for health insurance, they could afford to pay their workers 7.9% more and be no worse off. If workers paid 7.9% more of their income in taxes to pay for national health insurance, they would also be no worse off.

To a large extent, this is exactly what happens in other countries. Workers see the higher taxes they pay the same way Americans view the deduction from their pay for health insurance--not as money down a rat hole, but as the payment for a tangible benefit.

This isn't necessarily an argument for national health insurance. There are lots of reasons why it may be preferable to maintain the largely private health system we have in America. No one thinks it would be a good idea to pay higher taxes in return for having the federal government provide us with food. Variety and quality would undoubtedly suffer a great deal. The same would be true if the federal government took over the provision of health care.


Paul Price said...

Under Obama's proposals more than 50% off all Americans would pay ZERO or LESS than ZERO [after earned income and other refundable tax credits].

When more than half the people pay nothing [or negative income taxes] then, by definition, they will only benefit from higher tax collections. For them, no rate [imposed only on others] can be too high.

Nothing could be more damaging to the long-term growth of America.
This would be a tragedy for this country.

Chavez Gohu said...

Its nice we have finally some socialism here. Paul Price, What is your old useless ass complaining about?

Dan Quail V.P. said...


Why don't you and all the other homeless people...

just go home?

DaveinHackensack said...

Paul, see the next post where Clive Crook, also drawing on OECD data, notes that the tax system in the U.S. is highly progressive and that President Obama will need to tax not just the rich but everyone else to pay for his programs.