When it comes to taxes, there’s a whole lot of complainin’ goin’ on.
Complaining about taxes has become a national pastime for a large segment of the American population: They are unfair, almost half the taxpayers don’t pay any income tax at all, our income tax rates are way too high, only socialist societies pay such high taxes, American taxpayers who pay no income tax at all shouldn’t be able to vote on taxing those who do, on and on ad infinitum.
The debate rages back and forth — a mix of facts, misinformation and opinion, confusing everyone in the process.
So, in the interest of clarifying the issue, at least for myself, I decided to compare some basic facts about how our tax burden compares with those of other nations around the world:
Looking first at a list of countries by tax revenue as a percentage of GDP (Gross Domestic Product), the United Arab Emirates and Kuwait are the lowest, at 1.4 percent and 1.5 percent, respectively. Denmark is among the highest, at 50 percent, Switzerland is 30.1 percent, Australia 30.5 percent, Israel and Russia are both slightly under 37 percent, and the United States is 28.2 percent. GDP is defined as the total value of goods and services that are produced by a nation. Conclusion: The United States is roughly in the middle of the pack, while the median (half above/half below) is 17 percent and the arithmetic average is 22.7 percent.
Comparing income tax rates around the world is more difficult and subjective, because the complexity of the tax laws in different countries varies greatly, with differing combinations of personal and individual income taxes, payroll taxes, VAT (Value Added Tax), sales and other taxes.
A sampling of individual income tax rates ranges from top rates of 35 percent in Algeria and 59 percent in Denmark to Andorra, which has no personal or corporate income taxes. The top U.S. rate is 35 percent, but when the highest state income tax rate of 10.3 percent is included, the total is 60.3 percent, which puts us at the high end of the international scale.
The different nations also have a varied mix of payroll, VAT, sales and corporate income taxes. In addition, in the United States there are also a wide variety of other taxes, such as federal excise taxes, telephone taxes, personal and real property taxes. The list includes well more than 100 items.
Tax Freedom Day is another way of looking at the comparison. Wikipedia defines Tax Freedom Day as “the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden.”
In 2010, Tax Freedom Day was April 9, in 2000 it was May 1, and in 1900 it was Jan. 22. The long-term trend clearly demonstrates that an increasing percentage of our income is required to pay income taxes. Tax Freedom Day also differs in the various states because of the wide variation in state and local income taxes. Alaska was the earliest at March 26 (85 days) while Connecticut had the heaviest total burden, with a Tax Freedom Day of April 27 (117 days), and New Jersey had the second highest at April 25 (115 days). In short, depending on the particular state in which we may live, 100 percent of our total income for three to four months is required to pay income taxes.
Comparing the foregoing statistics with other nations around the world, Tax Freedom Day in India is on the 74th day of the year, in Australia it’s the 112th day, Canada is 157 days, France 197 days, Germany 190 days, Israel 197 days, Sweden 209 days and Norway 210 days.
So, depending on where we may live in the United States, our own individual Tax Freedom Day appears to be reasonably close to those of people who live in other countries. Bear in mind, however, this does not include VAT, sales, excise and the host of other types of taxes.
However, the question should be not whether our income tax burden is comparable to that of other nations, but how it impacts our own economy. Paying a percentage of our income that’s comparable to that of other countries should not be the standard — because it doesn’t speak to the issue of how much is too much in terms of the percentage of the nation’s GDP that’s necessary to fund the total tax revenue.
The problem is that to properly compare the U.S. tax burden with that of other nations, it’s necessary to include other types of taxes, such as Social Security, Medicare, Medicaid and the host of health-care taxes that have recently been added to the list, which will add more than $400 billion in new taxes by 2019.
My own conclusion is that when the cumulative impact of all forms of taxation is taken into account, Americans are having too much of our income consumed by taxes in general, which in turn has a negative impact on the nation’s productivity.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.
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