The “tea” in tea party is sometimes explained as “Taxed Enough Already.” Well, are we?
The left believes we — or at least “the rich” among us — are undertaxed, and wants to squeeze out more revenue. Just “spread the wealth around” to get wider health care coverage, better education, more mass transit, smaller budget deficits, less public debt, fully funded entitlements. Take your pick from this all-we-can-give-away buffet.
But what if I told you the average American already pays as much or more in taxes than the people in countries that do many of these things?
That’s the somewhat surprising revelation from Harvard economist Greg Mankiw. On his blog, he wrote that viewing taxes as a share of gross domestic product and concluding there’s more revenue to be had “may mislead us into thinking we can increase tax revenue more than we actually can.” That, he argued, is because “high tax rates tend to depress GDP.”
So, Mankiw did a simple calculation to compare taxes paid per person in the United States to those in the other Group of Seven industrialized countries.
The result: We are right in the middle, paying about $13,100 per person in taxes.
By this measurement, France is a high-tax outlier (paying 19 percent more per person than we do) and Japan is a low-tax outlier (31 percent less than us). The other countries — Germany, Britain, Canada and Italy — are right above or below us, even though all four have higher tax rates than we do.
(We now pause for all those people who lamented that we spend more on health care than other nations, without better results, to wring their hands about why we pay more in taxes than Canadians or Italians without getting “free” health care, high-speed rail, etc.)
There is an obvious explanation for why we pay about the same as these counties in absolute tax dollars despite having (broadly speaking) lower tax rates. The average American makes more money than the typical German, Briton, Canadian or Italian.
The question is whether we would continue to be more prosperous if taxes were higher. Can we raise tax revenues with impunity?
Maybe to a point. But the data from other nations suggest we’re more likely to pay a price, in lower incomes and standards of living.
Here also lies the rub for the “tax the rich” mentality. The countries that have what the left wants apply their higher tax rates to much lower income brackets than we do.
Our current top rate, 35 percent, applies only to taxable income of more than $373,000. So, our tax code is already far more progressive than those of the European welfare states.
That’s not even counting the value-added tax (VAT) on consumption that the European nations apply on goods and services, ranging from 17.5 percent to 20 percent. Paul Volcker, the former Federal Reserve chairman and current adviser to President Barack Obama, suggested this week that the United States might adopt a VAT in the near future.
Don’t buy the argument that taxes could go up without doing harm, and only on the rich. The bigger the government, the bigger the tax burden on all of us.