Is America really the most highly-taxed nation in the world as Donald Trump claims?

  1. What does the data say?
  2. But was he talking about income tax rates?
  3. What about indirect taxes, like sales taxes or VAT etc?
  4. But corporate tax rates are very high in the US aren’t they?
Ben Chu
Economics Editor
Thursday 07 September 2017 11:32

As part of his drive to cut taxes, Donald Trump has claimed in a Tweet today that the US is the “highest taxed nation in the world”.

Is he correct?

  1. What does the data say?

    There are several ways of approaching this question.

    The simplest is to look at the share of total national income, or GDP, raised by the US government in tax.

    The latest International Monetary Fund data shows that in 2016 the US government raised 30.9 per cent of its GDP in tax. This was well below the UK which raised 36.3 per cent.

    It was below Germany, which raised 45 per cent.

    In fact of the 191 countries covered by the IMF data set the US was only the 71st most taxed country in the world by this metric.

  2. But was he talking about income tax rates?

    If he was, this was also a false claim.

    The OECD compiles an annual cross-country report on wage taxes.

    Its main indicator is a “tax wedge” – defined as the sum of personal income tax, employee and employer social security contributions plus any payroll taxes, minus any benefits received by the employee, as a percentage of total labour costs.

    The OECD finds that the US tax wedge for a single earner couple with two children is around 20.8 per cent.

    Again, that’s well below the 25.8 per cent wedge in the UK, the 34 per cent wedge in Germany and the 40 per cent wedge in France.

    In the list of 36 mainly developed world countries analysed by the OECD the US comes in at only 26th by this metric.

  3. What about indirect taxes, like sales taxes or VAT etc?

    Again, Trump’ claim is grossly inaccurate by this measure.

    The OECD reports that in 2014 the US raised 3.8 per cent of GDP in consumption taxes.

    This compares with 10.3 per cent in the UK, 9.8 per cent in Germany and 10.8 per cent in France.

    The OECD average was 10.3 per cent. The US was actually the bottom of the list of 35 analysed countries for the consumption tax burden as a share of national income.

    If one looks at other taxes such as inheritance and capital gains there is also nothing out of the ordinary about how much the US raises by international standards.

    The US raised 2.7 per cent of GDP in such" property taxes" in 2015 according to the OECD - less than than the 4 per cent raised in the UK and France.

  4. But corporate tax rates are very high in the US aren’t they?

    The US headline corporate income tax rate is indeed high at 35 per cent.

    This is the top of the 34 countries in the OECD’s latest analysis set.

    This is significantly higher than the 23.4 per cent rate in Japan, 19 per cent in the UK and the 12.5 per cent in Ireland.

    But this doesn’t tell the whole story.

    Once various allowances and deductions are factored in, the effective corporate US rate on firms comes down to 18.6 per cent according to the US Congressional Budget Office.

    Although still relatively high, in 2012 this was lower than the rates seen in Japan and the UK.

    Moreover, many US multinationals legally avoid the domestic US corporate income tax by keeping their profits generated abroad offshore.

    The result is that the corporate income tax revenue raised by the US as share of GDP was just 1.9 per cent in 2015.

    That’s lower than the 2.3 per cent in the UK, the 4.3 per cent in Japan and the 2.7 percent in ultra-low tax Ireland.

    The US share of national income raised from corporate taxes is today considerably lower than in the 1960s and 70s when the US government raised upwards of 2.5 per cent of national income this way.

    Donald Trump may have a glimmer of a point if his words are generously construed as meaning that the US’s headline rate of corporate tax is abnormally high relative to peer economies.

    But it is misleading to suggest that US firms are currently “over-taxed” in a practical sense.

    Indeed, the argument put forward by Trump’s advisers is that by lowering the headline rate US multinationals such as Apple and Microsoft will repatriate offshore cash piles and therefore pay more tax to the US government than they do at present.

    And as for the idea of the American population as a whole being the most highly-taxed nation on earth that is simply a falsehood.

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