|Grover Norquist, Source: Business Insider, November 2012|
Grover Norquist's assertion that Americans are overtaxed, an assertion that a growing number of Americans believe, has been the central focus of his work in politics; and make no mistake about it, he makes a very convincing case. Mr. Norquist can rattle off a series of statistics to support his positions, and while his figures are often taken out of context, his influence should not be dismissed. After all, he did get 95% of all Congressional Republicans to sign an anti-tax pledge. Mr. Norquist's position is not a difficult one to defend. Honestly, who wouldn't want to pay less in taxes and it's an easy argument to fit on a bumper sticker? But with talks around the fiscal cliff heating up and with every government program with the possible exception of Social Security potentially on the chopping block, a simple question must be asked. Are Americans really overtaxed? Getting to the root of this issue is not easy, but it is necessary.
Taxation is a complex issue, so for the purpose of objectivity we will briefly examine three major areas of taxation: individual income tax rates, corporate income tax rates, and tax revenue as a percentage of gross domestic product (GDP). Leaving politics aside, let's take a look at the numbers and see how they compare both historically and in relation to our peers in the Organization for Economic Cooperation and Development (OECD). First, let's consider the single biggest provider of federal revenue, the individual income tax. Income tax rates today are at historically low levels. Across all income brackets, tax rates are as low as they've been since 1930 and are only a third of what they were in the 1940's and 50's.
Comparatively speaking, the US has some of the lowest income tax rates of any major economic player in the world. Ranking only 23rd, America does not come close to breaking into the top 10 nations in terms of income tax rates. In fact, the income tax rate in the US on the highest earners is a full 15% lower than the rate in Ireland, which has only the 10th highest income tax rates in the world. Turning to corporate taxes, while the US corporate tax rate at 35% on the highest business incomes seems a bit high, in reality the average US corporate income tax is still below the median effective rate among OECD nations. Finally, in terms of all forms of tax revenue as a percentage of GDP, the US ranks only 31st among OECD nations at 25.1% of GDP, which is a lower percentage share than it had in 1945, 1965, 1985, and 2005.
If you've traveled abroad much, particularly to developing nations, you may come to realize just how much the US government provides for its people and how effective and efficient our nation's government is when compared to the rest of the world. Certainly there is a lot of wasteful spending and we should always seek to achieve an even more effective and efficient government, but the idea that US citizens are overtaxed is simply not supported by the evidence, neither historically nor relative to other nations.
The premise upon which Grove Norquist has built his entire career is false and in my opinion the biggest lie in American politics today. Popular as it may be, it is this sort of foolishness that has made it impossible for politicians to address the issue of taxation in any real or meaningful way, and it has played a major role in creating the huge debt and deficits our nation now faces. There are real debates to be had about what government should and should not invest in, but we would do well to recognize that Americans are not overtaxed. In fact, as unpopular as it is to say, we're simply not taxed enough. And if you're not an American and happen to be reading this post and are wondering why it didn't discuss any form of a national consumption tax, commonly known as VAT, it's because the US doesn't have one. That's right, America is among only a handful of nations that has no national VAT. On that note I'll ask again. Are Americans really overtaxed? Not likely.
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- The Tax Foundation (2011). U.S. Federal Individual Income Tax Rates History, 1913-2011. Retrieved 30 November 2012: http://taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets
- CNBC (2012). Countries With the Highest Income Tax Rates. Retrieved 30 November 2012: http://www.cnbc.com/id/47290212/Countries_With_the_Highest_Income_Tax_Rates?slide=1
- White House (2012). Budget FY 2011, Historical Tables. Retrieved 30 November 2012: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/hist01z2.xls