The article linked above compares normalized tax systems for 35 different countries. Fascinating reading for the nerds among us, but as usual we need to note a few caveats and cautionary assumptions.
First, the analysis involves calculating total tax revenue for each country and then normalizing it by dividing by that country’s GDP. Great approach, but it does not spell out which taxes it includes. National taxes that come to mind include income tax, capital gains tax, excise tax, estate tax, gift tax, value-added-tax (VAT), and possibly others. The analysis does not include state taxes (income, sales, capital gains, gift, estate, etc), local taxes, or special tax districts, any or all of which can be substantial. Thus, the analysis provides some kind of starting point, but it is by no means the whole picture.
Second, some of the taxes mentioned above are progressive while others are regressive. Some of them amount to double-taxation while others are downright punitive. Income taxes, for example, are often tiered according to levels of taxable income. Sales taxes (yes, I realize the feds do not impose a sales tax) are regressive by nature, since they tend to hit low-income households proportionately much harder than high-income households. Estate taxes confiscate wealth that would ordinarily pass from one generation to the next and, depending on the circumstances they can push people out of their homes, farms, or businesses. At some point these become punitive.
Third, let me propose a modest idea about reforming the US tax system. The article claims that almost half of American taxpayers paid no income tax in 2019. I think that number is high, but for the moment let’s just assume that a substantial number (15%? 30%? 45%?) of Americans do not pay income tax. What if we require every American old enough to vote to pay an annual personal income tax of $2.50 (roughly the cost of a drink at a restaurant), even if it were to be refunded when they filed a tax return after the end of the year. Yes, there would be a cost in paperwork, but this would give them skin in the game, and perhaps help remind all of us that everything we get from the government ultimately comes from us, the taxpayers. Or would the politicians oppose such awareness…
3 thoughts on “Perspectives on Taxes”
Nice piece, Jesse. Especially your last statement…
It would be interesting to know out of the 50% who paid no taxes, how many not only paid no taxes but did not even file. As far as the politicians supporting or opposing it would depend on which side of the aisle you sit.
Agreed, it would be interesting to know how many people don’t file, and to know how many people do file but get back more than they pay in for any given year. Regardless, I would like to see everyone have to write out a check or pay something in cash, just so they have skin in the game. As far as the politicians, I don’t see much interest in fiscal responsibility or accountability on either side of the aisle, given the track record of the past couple of decades. Congress has a long history of dodging serious issues.