TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, August 27, 2012

America the Undertaxed

Foreign AffairsForeign Affairs:  America the Undertaxed, by Andrea Louise Campbell (MIT, Department of Political Science):

The most important debates in U.S. politics today center on the cost and the role of government. Cutting taxes, limiting expenditures, and reducing debt have become the chief concerns of Republicans, whereas Democrats generally seek to preserve or even expand government spending and are willing to raise taxes to do so. The looming expiration of the George W. Bush tax cuts at the end of 2012 and the economy's weak recovery give these debates special urgency, as decisions made in the next few months are likely to shape the nation's economic, social, and political trajectory for years to come.

Behind each party's position lies not only a particular collection of interest groups but also a story about what the government's role in the U.S. economy is and what it should be. Democrats think Washington can and should play a more active part, using taxation, regulation, and spending to keep the economy growing while protecting vulnerable citizens from the ravages of volatile markets. Republicans, in contrast, think Washington already does too much; they want to scale government back to liberate markets and spur economic dynamism.

When mulling these stories, it can be useful to put U.S. fiscal policy in perspective. Compared with other developed countries, the United States has very low taxes, little redistribution of income, and an extraordinarily complex tax code. These three aspects of American exceptionalism deserve more attention than they typically receive. 

(Hat Tip: Ajay Mehrotra.)

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Here we go again...another useless chart comparing apples and oranges. Just how stupid do some professors have to be to have not seen how many times that charts comparing taxes in various countries are not comparable and that socialist governments, like California, require high taxes to provide services that shouldn't be any of the government's business. But, keep working on it, because if we count health care fees and mandates towards taxes, we'll soon be number one. USA USA USA!

Posted by: Woody | Aug 27, 2012 4:55:13 PM

Mostly leftist propaganda. It is true that the US has an extraordinarily complex tax code. That aside, if taken at face value, the OECD graph proves that most other developed nations have very high taxes, not that the US has very low taxes. And such evidence fails to account for the historical fact that the US overcame Nazi Germany and the USSR, while the other developed nations listed in the graph were free riders. (The Brits and Australians deserve a measure of credit, to be sure.)

But the real knee-slapper is the assertion that the US has "little redistribution of income." For hard data to the contrary, see Steve Moore's piece on this blog last Friday.

This kind of "scholarly" analysis underscores why the American people must vote out the present Administration come November, before our heritage is lost forever.

Posted by: Jake | Aug 27, 2012 6:34:20 PM

Our tax system, however, is far, far more progressive than Sweden's. So to get taxes up to Sweden's level we would have to hugely increase the taxes paid by the the bottom 70-80 percent of the people.

Posted by: daniel | Aug 28, 2012 5:08:50 AM

True, most countries have far lower tax as % of GDP, but then most countries are Brazil, India, Nigeria...

Posted by: Maia | Aug 28, 2012 3:21:09 PM

In the study “Apples and Oranges—A Comparison,” published in the Annals of Improbable Research in 1995, Scott Sandford produced a spectrograph from dried samples of a Granny Smith apple and a Sunkist navel orange. He found it easy to compare the two, and the two fruits were remarkably similar. “Thus, it would appear that the comparing apples and oranges defense should no longer be considered valid. This is a somewhat startling revelation,” Sanford wrote. “It can be anticipated to have a dramatic effect on the strategies used in arguments and discussions in the future.”

How very wrong he was.

But: Norway has choosen to take its revenue from the countrys oil production in the formal form of a 50% resource tax on top of normal corporate taxation of 28 %. NOK 200 bn is classified as income tax instead of oil revenue due to the form. It is 8% of the total GDP of NOK 2500. Just changing the formal form of how the oil revenue is collected could deduct 8 % points from the statistics in the graph. I'm not sure how useful the chart is, when things like this decides whether a country is in the middel of the pack or close to the top of the chart.

Posted by: GSo | Aug 29, 2012 3:53:57 AM

Poor Woody and Jake. The English language fails them when confronted with facts.

Posted by: Publius Novus | Aug 29, 2012 6:49:06 AM

Poor Publius Novus. He puts faith in tax analyses by a political science professor. No surprise, he also puts faith in tax proposals from a community organizer.

Posted by: Woody | Aug 30, 2012 2:00:43 PM

"the historical fact that the US overcame Nazi Germany and the USSR while the other developed nations listed in the graph were free riders."

At the end of WWII, most of Europe was completely destroyed and in poverty, while the U.S., safely across the Atlantic, was rich and prosperous.

60 years of low taxes and small government (except for an overgrown military) later, it's the U.S. that looks like it lost a devastating war--high debt, crumbling infrastructure, short life expectancy, low levels of education, slow economic growth.

No one can look at the data and not conclude that Social Democracy is superior on both efficiency and fairness.

Posted by: Anon | Aug 31, 2012 4:48:41 AM

" the historical fact that the US overcame Nazi Germany and the USSR"

Nazi Germany ended in 1945. The odds of the USSR invading Western Europe dropped to Zero in 1960 when France developed nuclear weapons--on its own, without help from the United States. And the U.S. didn't do anything to stop the U.S.S.R. from crushing to Prague spring in '68, so I think it's safe to say they were drawing the line at NATO, same as France.

Defense wise, the U.S. hasn't done much for Europe in 50+ years.

Our military spending isn't for the benefit of Europe.

It's for the benefit of:
1. our military contractors
2. uneducated and unemployable rural voters who are incapable of doing anything other than killing people and blowing things up, since taxes are too low for us to provide them with job skills training
3. large corporations that want access to overseas markets, third world low cost labor, and international tax havens while the U.S. taxpayers foot the bill for making the world safe for multinational corporations to outsource U.S. jobs.

Posted by: Anon | Aug 31, 2012 5:02:49 AM