The U.S. Is a Low-Tax Nation Unless You Earn a Lot

(Bloomberg Opinion) -- The overall tax burden in the U.S. is, by wealthy-nation standards, not very high. The U.S. did move up a spot in the 2017 rankings published last month by the Organization for Economic Cooperation and Development, passing South Korea. But it’s still sixth from the bottom among the 35 OECD member countries in national, state and local tax revenue as a percentage of gross domestic product — and the tax cuts that began to take effect last January will likely knock it down a notch or two.

The U.S. Is a Low-Tax Nation Unless You Earn a Lot

This is a useful corrective to the claim, made a lot by President Donald Trump in 2017 and 2016, that the U.S. is “the highest-taxed nation in the world.” But, as I’ve learned when writing about these tax rankings in the past, it’s not the end of the story.

One complication is that some very important things that are paid for with tax dollars in other rich countries aren’t entirely covered by them in the U.S. As journalist Murtaza Mohammad Hussain put it last week:

A key cause of this seeming discrepancy between taxes paid and services rendered is that health-care spending in the U.S. is so high: $10,206 per person in 2017 compared with $4,826 in Canada, and lower than that in lots of other affluent countries. Government spending and private spending on health care in the U.S. are both high by international standards, because the overall bill is so staggering.

Still, taxes as a share of GDP are 5 percentage points lower in the U.S. than in Canada. Why might someone who has moved from one country to the other perceive otherwise? Well, taxes on labor are actually slightly higher in the U.S. than north of the border. Canada makes up the difference mainly with a national tax on consumption called the Goods and Services Tax. Federal excise taxes and state and local sales taxes in the U.S. are also consumption taxes, but the revenue they generate adds up to just 4.3 percent of U.S. GDP, compared with Canada’s 7.7 percent and an OECD consumption-tax average of 11.1 percent.

Another interesting twist to the U.S. tax system is that, by global standards, it’s pretty progressive.

The U.S. Is a Low-Tax Nation Unless You Earn a Lot

The 2018 version of this data will surely show the U.S. dropping down the list a little thanks to the reduction of the top federal marginal income tax rate to 37 percent from 39.6 percent. But as noted in the chart, the OECD uses the rate for Detroit because Michigan is pretty much in the middle of the pack in the U.S. for state and local tax burden. If you’re a very high earner in New York City, your top marginal rate is above 50 percent even after the tax cut.

That’s still much less than the 70 percent top marginal rate that new Democratic U.S. Representative Alexandria Ocasio-Cortez proposed this month. Several of my Bloomberg Opinion colleagues just discussed the wisdom or lack thereof of such a move, and I don’t have a whole lot to add. But it’s worth noting that it would give the U.S. the highest top marginal tax rate in the developed world, and that the U.S. top marginal rate is already high, or at least middling, by global standards. Taxes are much lower in the U.S. than most other developed countries, but income taxes for high earners actually aren’t.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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