Tax Burdens - Country Comparisons

In the May 22, 2006 Forbes article "Overall Tax Burden and Government Spending," Jack Anderson reports the U.S. tax burden is relatively low compared to other Organisation for Economic Co-operation and Development (OECD) countries:

After examining the Forbes Global Misery and Reforn Index, you now can look at all taxes at all levels of national and local government and total government spending, The Overall Tax Burden and Government Spending Table , which measures total tax burden in OECD countries as a percentage of gross domestic product, (“GDP”). This table uses the most recent official numbers available which are for 2004 and thus there is a time lag, but this gives us a good picture of what is happening. This Table is done to make sure that a reduction in the top marginal rate shown in the Misery & Reform Index is not lost through a change in the tax base, deductions or the progressiveness of rates or in the creation of new or hidden taxes at national, regional or local levels. This Table generally follows the Misery & Reform Index ranking with six of the top ten OECD countries in the Misery and Reform Index are also at the top of the Overall Tax Burden and Government Spending Table.

More specifically, this Table shows as does the Index that globally the tax bite dropped slightly from the prior year, with sixteen countries reducing total burden, six remaining constant and eight increasing tax burden. Despite this reduced overall taxation burden , it continues to remain in all of the countries above the levels of taxation of 1965 and only nine countries have decreased total taxation since1980 as a percentage of GDP. Of course, in absolute amounts, the government coffers have grown with their economies to historically unprecedented colossal amounts. The only surprise is there are not more dramatic tax revolutions as there have been historically. The confusing statements about the falling power and shrinking size of governments and the rising power of global corporations, at least in terms of what governments consume in taxes from the GDP of the country’s entrepreneurs and in absolute terms, is misplaced. Specifically, the nine exceptional countries, almost half now released from the burden of communism, that have decreased the amount of taxes in terms of the percentage of the GDP consumed by their government since 1980 are as follows: Belgium, Czech Republic, Hungary, Ireland, Japan, Netherlands, Poland, Slovakia and USA.

We also again include the Overall Government Spending results by each of the governments. Many governments are continuing the trend to reduce taxes, but the harder task of reducing spending is still to be accomplished. Only one-half of the countries reduced spending from the prior year. The solution to deficits is not to reverse the trend in tax reform, at least for those on the top of the Table and Index, but to control spending growth while the economic growth increase the absolute amount of tax revenue.

Comparing the Overall Tax Burden to the Overall Government Spending shows that all countries are spending more than they are taxing. This overall trend is not just a Keynesian cyclical exception. This difference in burden and spending is only partially covered by the increasing “budget deficit”. This difference is also partially covered by additional “revenues” that governments do not consider to be “taxes” including user fees and service charges, “profits” from government owned companies and monopolies and the sale of state assets, such as privatizations of state owned companies or sale of its real estate or its gold reserves. Thus the Overall Tax Burden is understated and hidden from taxpayers, but not from Forbes readers. Also note that the budget deficit that is covered by government borrowings require future taxes to repay the debt and currently service the interest payments (now among the top two or three expenditures of too many governments and these increased government borrowings also indirectly increase the interest rate paid the entrepreneur as an additional “tax”). The reality is the appearance of progress in tax burden in the analysis is partly masked and false due to government misreporting.

While the Misery & Reform Index charts the marginal tax cost on a growing business and its top executive, it is also important to look at the total taxes imposed by a country at all levels, national and local, as compared to its GDP to measure the overall burden.

Importantly, we also look in this table at Overall Government Spending at all levels of government, which in all cases is greater than the Overall Tax Burden. The resulting deficits are covered by debt, hidden taxes, profits from state owned monopolies and the privatization and sale of government assets. This allows the reader to be aware of the broader base of current and future total taxation issues. This is the latest official data from the OECD and is for 2004. It takes governments a year to count their colossal tax revenues and expenditures.