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We Just Don't Have Enough Taxes

October 25, 2007, 9:04 am

I propose a survey.  We will ask 500 CEO's of large company's and 500 small business owners just one question

1.  Do you agree/disagree with the following statement:  In order to make my business more competitive in international markets, the federal government needs to raise taxes and expand its scope

How many out of the 1000 would answer "Agree?"  Well, at least the number won't be zero, as long as you ask the NY Times:

"¦the taxes collected last year by federal, state and local governments in the
United States amounted to 28.2 percent of gross domestic product. That
rate was one of the lowest among wealthy countries - about five
percentage points of GDP lower than Canada's, and more than eight
points lower than New Zealand's. "¦the meager tax take leaves the United
States ill prepared to compete. From universal health insurance to
decent unemployment insurance, other rich nations provide their
citizens benefits that the U.S. government simply cannot afford.
"¦revenue will prove too low to face the challenges ahead.

I love the part about unemployment insurance particularly -- other countries are more competitive than we are because they pay their citizens more not to work.  Huh?  Daniel Mitchel responds:

The editorial conveniently forgets to explain, though, how America is
less competitive because of supposedly inadequate taxation. Is it that
our per capita GDP is lower than our higher-taxed neighbors in Europe?
No, America's per capita GDP is considerably higher. Is it that our disposable income is lower? It turns out that Americans enjoy a huge advantage in this measure. Is our economy not keeping pace? Interesting thought, but America's been out-performing Europe for a long time. Could higher rates of unemployment be a sign of American weakness? Nice theory, but the data show better job numbers in the United States.

I also would point out the general direction of net immigration, which has always been towards the US from nearly every country in the world rather than the other direction.

The favorite argument du jour for more taxes is that the US has more income inequality than other countries.  Well, that is sort of true.  Our rich are richer than theirs.  But are our poor poorer?  In fact, as I posted here, the data (from a liberal think tank) shows that they are not.   The poor in European countries have a higher percentage of a lower median wage.  When you normalize European income distribution numbers to percentages of the US median wage, you can see our poor do at least as well as those in Europe, while our middle class and rich do better.

Study2

The US poor still trail countries like Switzerland, but that is because of very different immigration realities.  The US numbers for the bottom quartile are weighed down by tens of millions of recent immigrants (both legal and not) whereas those of Switzerland and Norway are not.  If you left out recent immigrants, my guess is that the US poor would be the richest in the world.

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Category: Taxes
  • tim

    Did you ever notice that whenever people talk about income disparity they always use the words " Income received" Like in the title of your graphic "the share of US median income received by low and high income households". That makes me want to scream! Why can't they just use the word EARNED. Because "Received" has overtones that someone out there is dealing out dollars and "Earned" has overtones that someone out there isn't working hard enough. I prefer "earned" because I have never "received" a dollar in my life.

  • John Dewey

    Both Switzerland and Norway have older populations than the U.S.:

    median age

    Switzerland.....40.4
    Norway..........38.7
    U.S. ...........36.6

    Source: CIA World Factbook

    Where a larger share of the population is younger, we should expect greater inequality of household incomes, all else being equal. As Warren pointed out, though, all things are not equal. A significant portion of the younger U.S. population consists of low-skilled immigrants. Estimates for median age of illegal immigrants in the U.S. I've seen have ranged from 25 to 28.

    It is not surprising to me if the poor of Switzerland and Norway earn a higher percentage of median income.

  • bob

    No wonder that your tax is lower than New Zealand. Our tax-and-spend left leaning government over taxed us so much that even they could not spend all the loot. Over the last four years it has taxed each household in NZ about nz$25,000 too much (based on the surplus they had left over) - that's about us$18,750

  • Curtis

    There is a problem with the graph you show. I have seen it many places and the same rebuttle is often used: the graph does not take into account all of the services (health care, child care, higher education, pension and retirement fund) which are provided to all citizens of countries like Sweden, Finland or Norway. The lowest ten percent of income earners in those countries therefore have much lower expenses and therefore considerably higher disposible income.

    The conclusion is that those in the lowest income brackets are better off in a system with a large social net, whereas the highest earners in those systems have less disposible income than there American counterparts. Two different systems for two different sets of priorities. Quite simple to see, and it is just up to the society to decide where its priorities are.