Contra Bloomberg News, U.S. Taxes Aren't "Too Low"

A senior editor at Bloomberg thinks taxes “really are too low” in the United States, and he thinks they could be easily raised.  He wrote recently that the U.S. is “more lightly taxed than any other leading developed economy, by far.”  And he suggested that political support is growing for higher taxes on individuals, corporations, and investors.

The writer’s argument that the U.S. is a low-tax country is flimsy and weak at best.  He bases his contention on an OECD table showing that the total U.S. tax burden as a percent of GDP is lower than that of other OECD countries. 

However, the higher OECD tax burden is entirely the result of the steep value-added taxes every other OECD country imposes on their people to fund their large social welfare spending programs.  The U.S. is the only OECD country without a VAT,  and if other countries’ VATs are not included in the table, the overall tax burdens are roughly similar.  You would think someone at Bloomberg would know this.

Most members of the media do seem to  believe that U.S. taxes are too low, blaming Republican tax cuts back to Ronald Reagan.  The writer quotes a Financial Times commentator saying that the U.S. is “ludicrously under-taxed” compared to European nations.   But the numbers prove otherwise.  U.S. tax rates on individuals, corporations, and investors are higher than the average OECD tax rates. 

The top average individual tax rate in the U.S. is 43.7%, higher than the top average OECD rate of 42.6%.  Top individual tax rates in major U.S. states such as California, New York, and New Jersey are higher than 50%, comparable to Sweden but higher than the average European rate of 38.5%.

Capital gains tax rates are higher in the U.S.   The average combined federal-state tax rate is 29.2%, more than ten percentage points higher than the average OECD rate of 19.1%.  Taxpayers in states such as California, New York, Massachusetts, and Oregon face capital gains rates well over 30%. 

Finally, many in the media firmly believe that the U.S. corporate tax rate has been “slashed” to a rate lower than most other countries.  In fact, the U.S. rate was reduced from the highest rate in the world to a more competitive rate, but it is still higher than most other countries.  According to an OECD report, 70% of the countries in the world have a lower corporate tax rate than the U.S.  The average U.S. combined federal and state tax rate of 25.6% is higher than the 20% average corporate rate in Asia, Europe , and the Nordic countries.  And high rates in a dozen states push the combined corporate rate to nearly 30%.

Scandinavian and many European countries have learned that high tax rates on corporations and investors reduce investment and growth and their ability to compete.  Polling shows that Americans are overwhelmingly opposed to increasing tax rates when they learn that higher corporate tax rates result in lower wages, fewer jobs, less investment, and higher prices. 

U.S. taxes are not too low, and we should not be raising them.  Americans already pay more in taxes every year than they pay on food, clothing, and shelter combined.  As we see every year, higher taxes only lead to more spending.  According to the CBO, total taxes this past fiscal year increased by 3% and total spending increased by twice as much. The U.S. is not a low-tax country.  Our increasing tax burden pays for more spending every year.