Photographer: Joe Raedle/Getty Images
Taxes

The U.S. Is a Low-Tax Nation

New data disagrees with the president-elect's assessment.

There's new data out on the taxes that people and corporations in the world's affluent nations paid in 2015. The U.S. total tax burden of 26.4 percent of gross domestic product (that includes state and local taxes) once again lands us pretty far down in the rankings. Of the 35 members of the Organization for Economic Cooperation and Development, the affluent-nations club, only South Korea, Ireland, Chile and Mexico have lower tax burdens. 1

Tax Burdens, Ranked

Total tax burden as a percentage of gross domestic product, 2015

Source: Organization for Economic Cooperation and Development

Includes state and local taxes

It is true that the OECD's membership is dominated by small, high-tax European nations, which kind of skews a chart like this. But even if you just look at the five biggest OECD economies, the U.S. has been the one with the lowest taxes for a while now.

The Tax Burden Over Time

Total tax revenue as a percentage of gross domestic product

Source: Organization for Economic Cooperation and Development

Includes state and local taxes

The first and most obvious lesson here is that Americans who say "we’re the highest taxed nation in the world" are saying something that is not only untrue but something like the opposite of the truth, at least when you're talking about countries at similar levels of development (there's a bunch of less-affluent countries and a few rich petrostates with lower tax burdens than the U.S.).

Another interesting takeaway from the above chart is that the U.S. tax burden has been quite stable through the decades, seemingly oscillating around 25 percent of GDP. All those pitched battles over tax policy since the 1970s have amounted to ... a stalemate. 2

The relatively low tax burden has not resulted in markedly faster economic growth: U.S. per capita GDP growth has tended toward the middle of the road among OECD countries. 3  That could be partly because, as economist Peter Lindert has argued, high-tax OECD countries do a better job of designing their tax systems so they aren't a drag on growth.

The U.S. Taxes Income More, Consumption Less

As a percentage of total tax recipts*

Source: Organization for Economic Cooperation and Development

*Percentages don't add up to 100 because of rounding and the omission of two minor categories.

As is apparent in the above chart, the U.S. relies more on income taxes and less on consumption taxes (such as sales taxes and value-added taxes) than is the OECD norm. The U.S. also has a perverse corporate income tax system with a top marginal rate that is exceeded by only two other countries 4  but so many loopholes that actual revenue is well below the OECD average as a share of GDP.

So yes, the U.S. could use some tax reforms, and maybe even lower personal income taxes. But the argument that we need lower taxes overall is a little hard to make. It's not impossible -- just because Denmark gets by with a tax burden of 46.6 percent of GDP doesn't necessarily imply that the U.S. burden of 26.4 percent is too low. But it requires a pretty clear explanation of what the country should spend less on and why that's a good idea. My own sense is that, given the fiscal challenges retired baby boomers and their medical bills will pose over the coming few decades, we actually ought to be talking about how to raise tax revenue by a few GDP percentage points in ways that don't overburden the economy.

We live in a low-tax nation. That doesn't mean taxes need to go up. But it does mean they could.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. There are three members missing from this chart (Australia, Japan and Poland) because the OECD doesn't have 2015 data from them yet, but their 2014 tax burdens were all higher than that of the U.S.

  2. I thought this might be because state and local tax revenue had risen while federal tax revenue had fallen, but it turns out federal revenue's share of U.S. GDP is about where it was in the late 1970s.

  3. I checked the time periods 1970-2015, 1980-2015, 1990-2015 and 2000-2015. U.S. real per-capita GDP growth ranked right about in the middle among the OECD nations for which data was available for 1970-2015 and 1990-2015, was in the top half for 1980-2015 and in the bottom half for 2000-2015.

  4. Bet you didn't guess Chad and the United Arab Emirates.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Stacey Shick at sshick@bloomberg.net

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE
Comments