Several European countries tax in excess of 40% of GDP, including Denmark, France, Belgium, and Italy. Five OECD countries had a lower tax-to-GDP ratio than the U.S.: Turkey, Costa Rica, Ireland, Chile, Colombia, and Mexico.
Income Taxes
Percentages of GDP are only one way to compare tax burdens. The issue changes a bit if you narrow the focus down to just income taxes. The United States’ top individual tax rate is 37%. That’s lower than the top rate in 17 out of 27 European countries. The countries with the highest tax rates were Denmark (56%) and Austria (55%). Outside of Europe, Israel (50%), Australia (45%), China (45%), and South Africa (45%) all have higher top rates than the U.S. Countries with lower top tax rates included Guatemala (7%), Norway (22%), Brazil (27.5%), and Canada (33%).
Consumption Taxes
Consumption taxes are taxes on goods and services. In the U.S., these are mostly charged as sales taxes, which vary by state and locality. Other countries may impose a national value-added tax (VAT), sometimes called a goods and services tax. It’s similar to sales tax except the good is taxed at every stage of production. The U.S. taxes goods and services far less overall than any other OECD nation. In 2018, these types of taxes made up 18% of U.S. revenue compared to an average of 32% in all 38 OECD countries. To compare consumption tax rates across the world, we need to come back to the fact that sales taxes in the U.S. are imposed by states and localities. California has the highest sales tax rate, at 7.25%. But when you look at each state’s sales tax rate combined with its average local tax rate, Tennessee tops the list, with an average combined tax rate of 9.47%. The average for all states is 6.53%. That’s still lower than consumption taxes in more than 125 countries. Most European countries have VAT of 20% or more. Hungary’s is 27%, while Mexico’s is 16% and the Australian goods and services tax is 10%.
The Added Cost of Tax Preparation
It’s said that time is money, so it bears mentioning that the U.S. has one of the most complicated tax filing systems among developed nations. According to T.R. Reid, author of “A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System,” U.S. taxpayers collectively spend about six billion hours preparing and filing their returns every year.
