Apples-to-Apples

This article has been trending on The Economist and I'm wondering why. The Economist's brief write-up summarizes a KPMG study on the average effective tax rates across 93 countries. The U.S. is shown near the bottom of the chart. My guess is that people looked at the study or chart and concluded the U.S. is a low-tax government relative to other industrialized nations.

However, this study is not an apples-to-apples comparison.

Why? Because each of the 93 countries have different constitutional structures, levels of government, taxes, etc. Unlike Sweden, Belgium, Greece and Denmark, the U.S. has 50 different state governments that collect income taxes. Additionally, all of these countries have different corporate taxes (FYI, America has a ~42% corporate tax rate when you include state and local income taxes), death taxes, sales taxes, etc. Belgium's corporate tax rate is ~19%, therefore common sense tells me Belgium's politicians have more "dry-powder" to justify a 48% income tax.

The Economist's popular chart cannot be used to compare America's tax culture to other countries. It would be interesting to see a similar study that normalizes for the 93 different tax cultures...something like the average effective income tax rate collected by all levels of government across 93 countries.

Paul Ryan on Taxes

Paul Ryan's great video posted today on YouTube reminds me of my August 14th blog post No Death, Just Taxes.

Close loopholes and simply the tax code, then lower the statutory tax rate (flat or simple progressive...almost anything would be better than what we have today) for both corporations and individuals.

No wonder they're mad Krugman

My response to Krugman's OpEd today

Perhaps the reason why the poorest Americans have seen their incomes stagnate over the past decade is because the government has grown in size as a % of GDP from 33% in 2000 to 44% in 2010. An increasing government is not the best way to create prosperity, nor lift those on the bottom of the wage ladder out of poverty, because the free market is the best, most efficient, and most fair way to distribute wealth among citizens...not the government. I know that may be a tough one for you to swallow Dr. K, but not everyone has the same definition of “fair”, especially when it comes to money and income.

No wonder the rich (defined as the top 1% if income earners) are “angry”! Their share of total federal income taxes paid has increased from 24.8% since 1987 to 40.4% in 2007. However the money that the rich pay in taxes isn’t being used efficiently, nor is their money going to its highest valued purpose (because it’s being spent by the government). It's hard to deny or paint data that the IRS provides as biased.

The rich are rich for a reason…they have been smart with their savings and invest their capital into opportunities, businesses and industries which in turn creates jobs. I trust that the rich will spend their own money far more efficiently than the burgeoning and cumbersome federal government.