More On Taxes

Hi,

It was remarkably easy (took 20 minutes to find, digest and type) to get decent data on taxes from industrialized countries. I got the per capita GDP data from the CIA world fact book (see link on this blog). I got the tax information from the OECD.

Some highlights: US tax rates do not look that different from other industrialized countries. By some indicators our taxes are lower and by others they are about average.

Bottom line: The top marginal income tax rate for Americans in 2001 (combined state and federal tax) was 47.7 percent. However, before you flip out about how high that is consider this. You don't pay that rate until you earn $304,287/year (in purchasing power parity dollars). That would put you comfortably in the top 1% of the income distribution (see previous posting). For this comparison consider that the USA per capita GDP is $36,300 (2001 PPP dollars).

Compare this with the United Kingdom which is among the most free market economies in Europe. The top marginal rate in 2001 in the UK is 40.0% but they pay that top rate after they earn $53,371 (PPP dollars). The per capita GDP in the UK is $25,500 (2001 PPP dollars).

In Luxembourg - one of the richest countries in the world - the top 2001 marginal rate is 43.1% but they start paying the top rate after earning $78,958. The per capita GDP of Luxembourg is $48,900 (2001 PPP dollars).

Ireland - aka "the Celtic Tiger" - has been running high growth rates for years now. Ireland's top 2001 marginal rate was 48% which people start paying at $27,405 (PPP dollars). Ireland's per capita GDP is $29,300 (2001 PPP dollars). Yes, the Irish are now richer than the Brits!

OK, per capita GDP isn't the best measure of income distributions but I don't have time to do any major research here and its good enough to give a rough comparison.

To sum up: The top marginal tax rates are comparable in all four countries. But the real killer is where in the distribution that top rate kicks in. In the UK and Luxembourg if you make roughly twice the per capita GDP you are paying the top marginal tax rate. In Ireland you start paying the top rate at an income roughly equal to the per capita GDP. In the USA you don't pay that top rate until you are making 8.38 times as much as the per capita GDP. All of these countries have comparably healthy, stable economies despite the differences in their tax burdens.