Thursday, July 1, 2010

The Wide World of Taxes

I was travelling with my family by ship in the Baltics this month, a trip I can highly recommend. All the cities are quite beautiful, with St. Petersberg being a real stand-out (as long as you stuck to the pre-Soviet neighborhoods).
At almost every stop some fellow tourist would ask the local tour guide about tax rates. In Finland, our tour guide announced that the top marginal rate was 70%. She said this – devoid of irony - right after telling us about how the Finns kept the Soviets at bay for several generations. Top marginal rate in Russia these days? 13%. Not sure who won and who lost.
(Note: I have since learned that Finnish taxes aren’t quite that high, but they’re still high.)
This got me wondering about tax rates around the world. In March, I wrote a piece on net debt levels around the world, which gives us an idea for which direction taxes could head in different countries (see: But what about right now? How bad is it out there?
I decided to look at tax rates in countries big and small. Some of the results you may find surprising. My methodology is simple: I take the highest marginal rate for personal income taxes, corporate taxes, value-added taxes (or sales taxes), and capital gains taxes, and I add them all together to get a tax “score.” Obviously, this is simplifying something that can be highly complex. The U.S. tax code, for instance, weighs in around 20,000 pages. Further, different taxes affect people differently. But I think as a rough pass, it is instructive.
The envelope please…

Obviously, the lower the score, the better. A few observations:
·         The EU countries, which have desperate amounts of debt, are already highly taxed. Raising taxes further is unlikely to raise more revenue. It will only succeed in raising non-compliance, which is already very high and not a social taboo.
·         Switzerland, though landlocked, is quite literally an island, economically speaking. How glad are they they’re not in the EU?
·         Asia and Eastern Europe, generally, score quite well.
·         Hong Kong does not surprise me. I used to live there, and I did my taxes once a year on a postcard. Despite the low rates, the government would run surpluses most years (and was somewhat embarrassed about it).
·         Singapore is sure doing something right. They have net assets of 188% of GDP (you read that right – net assets – their sovereign wealth exceeds their debt), so they will actually have room to reduce the world’s second lowest tax burden even further.
·         The U.S. is right up there among the more highly taxed nations of the world. (Note: I added an “average” state income tax to the federal, something I also did for Canada where they have high provincial taxes. I also added an average sales tax.) In fact, the U.S.’s score probably understates things, because there are more miscellaneous taxes here than can be counted, something not captured by these numbers. Ever look at your cable or hotel bills? Taxes and more taxes. I also didn't include inheritance taxes or property taxes, both killers in the U.S.
I wrote another piece a while back called Are We Socialist Yet?
( Certainly, high marginal tax rates are a key tenet of socialism. I concluded that America had already been for some time. Obama is not leading us on a path to socialism, we got there a while ago. Republicans, save Reagan, played an active role in this. Obama is merely hastening the slide.


  1. George Sim JohnstonJuly 1, 2010 at 3:11 PM

    As Jude Waninski demonstrates in "The Way the World Works", nations and empires rise on the low end of the Laffer curve, and fall on the high end. Scott is right: The Republicans, who ought to be minding the store, are no help anymore, with exceptions like Gov. Christie of NJ. The governing class on both sides of the aisle wants your money--which they consider their money.

  2. Scott, great post. I have sent many folks to it.
    So where do property taxes fit in on the chart?
    Why don't GOP/Conservatives point out our relative tax rates when arguing against tax increases? Seems like a winner.

  3. @Anonymous:

    Property taxes aren't in here, because they are wildly variable. This only bolsters my argument, though, that we are the world's most taxed country.

    Republicans have no spine. One Democrat says the words, "tax cuts for the rich," and Republicans run for the hills. Yet, 100% of the facts and logic support a move towards a simpler system with lower rates.

    Chris Christie needs to start conducting seminars for all Republicans on how grow a pair.