Thursday, April 7, 2011

US Taxation Light Compared to Other Industrialized Nations


This shows why added revenue needs to be a part of our debt reduction strategy. Advocates of additional tax cuts argue that we need lower taxes to compete in the international economy, but the economic success of countries like Germany and Sweden prove this incorrect. Yes, Italy's tax rate is very high, and that country is not competitive, but the success of other countries illustrates that tax rates are not the underlying cause of competitiveness.

27 comments:

TJE said...

Tax the AARP!

http://www.nationalreview.com/articles/264064/aarp-business-robert-verbruggen

Megan said...

watched a hearing on AARP. AARP and a number of other tax exempt "charity" organizations are extremely sketchy.

PBM said...

Agreed, but that has nothing to do with how low the US tax rate is.

Megan said...

Tax exemptions have everything to do with low revenue rates.

PBM said...

Yes, but you are talking about the AARP to get the conversation away from deficit reduction that involves increased revenue. Also, I don't think closing charity loopholes in the tax code will solve our problems.

Ian Thresher said...
This comment has been removed by the author.
Ian Thresher said...

I agree that TJE and Megan are overlooking the general thrust of this data, but I also think the data is somewhat misleading. It is true that we have a relatively lower tax rate, but that does not take into account the role of Government in the other countries on the graph. For instance, Sweden provides a free University education (many other European countries do this) as well as extensive welfare programs. The cost of these benefits is extraordinarily high and thus higher taxes are more justifiable than they would be in our system. I am not trying to pass judgment on which system of Government is better; I am simply trying to point out that there are both ideological and practical reasons for the different tax rates.

TJE said...

PBM, would you end all of the Bush tax cuts?

http://www.csmonitor.com/USA/Politics/2010/0913/Bush-tax-cuts-101-What-changes-could-be-in-store-for-taxpayers

PBM said...

I agree with you Ian, my main point was twofold. First, nation's can still be competitive with high tax rates (and large safety nets). And second, at what point the GOP will say, "OK, taxes are low enough now, we can stop cutting them?" I would argue that this will never happen, because it is not happening right now when federal taxes are the lowest they've been since the '50s, and all taxes are some of the lowest of industrialized countries. I also find the GOP's "competitiveness" argument on taxes to be completely insincere because of the facts clearly illustrated on this chart.

TJE said...

http://www.taxfoundation.org/research/show/26974.html

PBM said...

TJE, depends on the economic outlook when they are up for reauthorization. If we are adding a solid amount of jobs per month and the economy continues with a healthy recovery,then I think it would be reasonable, and very helpful in the reduction of our debt.

jwhitney said...

A very credible reason the US is competitive for businesses and innovation is because we have noticeably low tax rates. Yeah, I think we'll have to raise taxes at some point, but this graph doesn't prove the point that higher tax rates leads to the prospect of becomming the next industrial power like Germany, if that's what you're really saying when you say "because of the facts clearly illustrated on this chart."

PBM said...

That graph calculates the federal corporate tax rate at 35% and doesn't take loopholes into account. The effective rates aren't even close to that, and you and the Tax Foundation both know that.

Megan said...

You would be surprised how open Republicans are to getting rid of loopholes.

Megan said...

Let's not forget the largest tax exemptions are employee sponsored health insurance and pension plans, which have the backing of labor unions.

Patrick_L said...

a) on the charitable tax expenditure, no one would seriously propose eliminating it in its entirety. Too many vital and very popular charities rely heavily on the incentives created by that tax expenditure. However, you could either seek to revaluate nonprofit status rules and restrict which nonprofits get any tax preferences, or you could reduce as a % of income how much of a charitable deduction you can claim. Either way, you will almost certainly only get several hundred billion dollars from this tax deduction over a decade- any more significant changes in the tax expenditure are politically impossible. How many people are going to attack everyone’s favorite charity?
b) I’m confused by Ian’s point- obviously the U.S. has a tax system collects lower tax revenues compared to our peers because our government spends less money. However, America’s spending side is inevitably going to rise as a result of the demographic boom and rising health care costs. In addition, we have to reduce the debt-to-gdp ratio quickly in order to lessen the risk that the U.S. will face a debt crisis. Since changing the major entitlement programs takes time, revenue increases are essential. The provided chart just makes clear that repealing the Bush tax cuts and further increasing revenues modestly will not make the U.S. an outlier- I’d be surprised if we ever even hit the average level of our peer nations. The real point to take away is the U.S. is still an outlier on both spending and revenues. We are not turning into a European nation, let alone a socialist one (as so many in the Tea Party fervently and falsely believe).
c) I would end all of the Bush tax cuts, as most fiscal reports have recommended. It’s the most important thing for giving our nation breathing to room to alter entitlement programs and bend the health care cost-curve. Look at Ryan’s proposal- even with $4 trillion-plus in spending cuts, he still couldn’t get significant deficit reduction in the first decade because he made the Bush tax cuts permanent. I disagree with Peter- the economic outlook of the time when they are currently scheduled to expire is irrelevant- any resulting loss in economic growth is worse the immediate reduction in the risk of a disastrous debt crisis

PBM said...

Yes, low tax rates contribute to our innovation and competitiveness, but the GOP would argue that we are falling behind because our taxes are too high, which is false. Main point is that this graph shows that low tax rates are not the underlying source of competitiveness, and there are many factors involved. I didn't say that raising taxes would turn us into a Germany-like industrial powerhouse, and I don't think that.

PBM said...

Megan, are you familiar with Grover Norquist of Americans for Tax Reform? He has GOP candidates sign a pledge saying that they will not raise taxes. This pledge currently came to a test in the Senate, when Tom Coburn wanted to strip ethanol producers of their tax exemptions, and Grover Norquist said that this would be equal to a tax increase, and would not be acceptable under his group's tax pledge, signed by something like 90% of national GOP elected officials. So, I can deduce from this choice on a pretty common sense proposal that Norquist and his group, who are very powerful in GOP circles, would consider closing loopholes as tax increases.

jwhitney said...

"This shows why added revenue needs to be a part of our debt reduction strategy. Advocates of additional tax cuts argue that we need lower taxes to compete in the international economy, but the economic success of countries like GERMANY and Sweden prove this incorrect." <3 PBM

jwhitney said...

;)

jwhitney said...

:) :) :) :) :) :) :)

PBM said...

I'm saying they are still competitive even though they have higher tax rates. Can I help you? I haven't contradicted myself

Ian Thresher said...

b. Patrick,
c. I do not really understand your economic jargon. My point was simply that Sweden and other countries have higher tax rates primarily because of many socialist-esque welfare programs. They pay more, but get more out of the government. Thus, I think it is misleading to say that since the U.S. taxes less than other countries; it is okay to tax more. Peter explained that that was not what he was arguing and that he is more interested in economic competitiveness irrespective of a higher tax, which sounds like what you are saying and which I think makes sense.

TJE said...

Korea, Japan, Australia, and Switzerland seem like good company:

http://www.taxfoundation.org/blog/show/26928.html

Patrick_L said...

Korea? You’re comparing the U.S. to developing countries? If so, and you think low tax revenues are so great, why didn’t you mention Chile, Turkey, and Mexico? They’re also developing nations with low tax revenues… That’s what I thought. You cannot seriously compare the United States to Korea, a nation with a gdp-per-capita ratio 60% of what’s found in the U.S. We are a rich country, they are not. Australia actually is a developed nation, but the U.S. is still significantly richer than this country. Australia is not in the same economic class as Japan, the U.S., Canada, and Western Europe- you still can’t make the kind of comparisons you’re attempting with countries at such different stages of development. I’m assuming you don’t want to copy the part of Australia where they are significantly poorer than us?
Japan and Switzerland are the only countries which you cited that are seriously comparable to the U.S., and you know it. Japan? I don’t know how many economists would cite Japan as a fine example of a world economy. Haven’t you heard- they’ve had a little problem with economic growth for a few decades. And do you like their debt-to-gdp ratio? It’s about twice ours.
That takes us to Switzerland. Like all European countries, the biggest difference between Switzerland rests on the fact that the U.S. has to spend so much more on health care- about 4 more percentage points of GDP. How do they get that healthcare? An individual mandate with harsh compliance penalties, the government defines a standard insurance benefit, an extensive federal government system of price regulation, largely preventing variation in premiums by age, requiring insurers to be “not-for-profits,” and regulating which procedures, treatments, drugs, and tests are covered by insurance by taking into consideration value for costs. If we have their tax system, why can’t we have their health care? (Btw, their system is still the second-most expensive among our peer nations.)
It’s also interesting that you ignore robust economies like Sweden and Germany with much higher tax revenue levels. If we’re looking for high-performing economies, why not select high-growth countries that also have successful welfare states?
Or maybe we should just reject your gross simplification of economics where you handpick the nations you use to draw correlations in order to justify your favored economic policies?

TJE said...

Don't be Eurocentric Mr. L.

http://www.time.com/time/magazine/article/0,9171,2029399,00.html

Patrick_L said...

Don't ignore dozens of counter-examples and try to apply correlations to a handpicked sample to support your pet economic preferences.