USA a low-tax nation

There’s new data out on the taxes that people and corporations in the world’s affluent nations paid in 2015. The US total tax burden of 26.4 percent of gross domestic product (that includes state and local taxes) once again lands us pretty far down in the rankings. Of the 35 members of the Organization for Economic Cooperation and Development, the affluent-nations club, only South Korea, Ireland, Chile and Mexico have lower tax burdens.
It is true that the OECD’s membership is dominated by small, high-tax European nations, which kind of skews a chart like this. But even if you just look at the five biggest OECD economies, the U.S. has been the one with the lowest taxes for a while now.
The first and most obvious lesson here is that Americans who say “we’re the highest taxed nation in the world” are saying something that is not only untrue but something like the opposite of the truth, at least when you’re talking about countries at similar levels of development (there’s a bunch of less-affluent countries and a few rich petrostates with lower tax burdens than the US).
Another interesting takeaway from the above chart is that the U.S. tax burden has been quite stable through the decades, seemingly oscillating around 25 percent of GDP. All those pitched battles over tax policy since the 1970s have amounted to … a stalemate.
The relatively low tax burden has not resulted in markedly faster economic growth: US per capita GDP growth has tended toward the middle of the road among OECD countries. That could be partly because, as economist Peter Lindert has argued, high-tax OECD countries do a better job of designing their tax systems so they aren’t a drag on growth.
As is apparent in the above chart, the US relies more on income taxes and less on consumption taxes (such as sales taxes and value-added taxes) than is the OECD norm. The US also has a perverse corporate income tax system with a top marginal rate that is exceeded by only two other countries but so many loopholes that actual revenue is well below the OECD average as a share of GDP.
So yes, the US could use some tax reforms, and maybe even lower personal income taxes. But the argument that we need lower taxes overall is a little hard to make. It’s not impossible — just because Denmark gets by with a tax burden of 46.6 percent of GDP doesn’t necessarily imply that the US burden of 26.4 percent is too low. But it requires a pretty clear explanation of what the country should spend less on and why that’s a good idea. My own sense is that, given the fiscal challenges retired baby boomers and their medical bills will pose over the coming few decades, we actually ought to be talking about how to raise tax revenue by a few GDP percentage points in ways that don’t overburden the economy.
We live in a low-tax nation. That doesn’t mean taxes need to go up. But it does mean they could.
—Bloomberg