Some Consolation This Tax Season

Well, that depends on your point of view. While tax season has come and gone in the United States, if you are still feeling the sting and contempt wrought by taxes — as so many Americans do year-round — perhaps you will feel more fortunate following the recent findings by Pew Research Center, which found that U.S. citizens are among the least-taxed of the developed world.

Here is a quick analysis from the Washington Post

The graph above shows where Americans rank in terms of average income taxes and mandatory social insurance contributions as a percentage of gross income. It compares the 34 countries in the Organization for Economic Cooperation and Development, excluding Mexico and adding in Bulgaria, Croatia, Latvia, Lithuania Malta and Romania.

The U.S. consistently ranks toward the bottom of the group, indicating that Americans spend a smaller portion of their income on taxes than people in many advanced countries.

Only South Korea and Chile have a lower tax rate than the U.S. (Mexico, if included, would be dead-last in tax rates).

Here is the more comprehensive assessment of the data by Pew itself, which notes some caveats as well:

Much of the difference in relative tax burdens among different countries is due to the taxes that fund social-insurance programs, such as Social Security and Medicare in the U.S. These taxes tend to be higher in other developed nations than they are in the U.S. Take that married couple referred to above: In 20 of the 39 countries studied, they paid more in social-insurance taxes than in income taxes. The U.S. had the 11th-lowest social-insurance tax rate for such couples among the countries we examined.

Like pretty much anything about taxes, there are caveats with the OECD data. The biggest caveat, of course, is that our comparisons don’t take into account what citizens receive from their governments in either direct or indirect benefits as a result of these different tax structures. We’re only looking at what citizens pay into the system – and even then, just a portion.

For instance, these figures don’t include taxes paid at the state, provincial or local level (such as sales and property taxes in the U.S.), nor do they include other national taxes, such as gasoline and cigarette taxes in the U.S. or value-added taxes in dozens of other countries. And they include only the individual portion of social-insurance taxes, not anything paid by employers. (In the U.S., for instance, employers and workers both pay Social Security and Medicare taxes.)

Granted, all this is only consoling when you ignore the fact that while Americans are under-taxed by global standards, the system is nonetheless widely perceived to be unfair and unequal.

None of this is likely to shift Americans’ opinions about the fairness, or lack thereof, of their own tax system. In the Pew Research Center report, for instance, some six-in-ten Americans said they were bothered a lot by the feeling that “some wealthy people” and “some corporations” don’t pay their fair share. And in a prior Fact Tank post we discussed the data behind the U.S.’s progressive income tax system: A small number of high earners pay the most income tax. According to IRS data, taxpayers with $250,000 or more in adjusted gross income (AGI) accounted for 2.4% of all individual tax returns, 25.9% of total AGI, 32.2% of total taxable income, and 48.9% of total individual tax receipts.

Indeed, this perception is grounded in reality: once one factors in state and local taxes, the system overall is quite regressive (that is, it disproportionately impacts the poor and middle class).

Needless to say, this is hardly comforting in a country facing high inequality, growing poverty, soaring tuition and healthcare costs, and numerous other socioeconomic ills resulting, in part, from a lack of public investment in such services.

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