How Low are American Taxes?

Following up on our post from Sunday, we find another post in the New York Times Economix blog, this time from Reagan and Bush administration official (and born-again Keynesian) Bruce Bartlett, who presents information supporting the argument that the United States is a low-tax nation. Federal tax collections as a percentage of GDP are to be 14.8% this year, the lowest level in more than sixty years. They were 14.9% in 2009 and 2010. Since the end of World War II, tax collections have averaged 18.5% of GDP.

Low taxes are especially beneficial to corporations. As has been widely discussed, statutory corporate tax rates in the Untied States are among the highest in the industrialized world, but they are also riddled with loopholes. As a result, the amount of corporate taxes actually paid is quite low. At 1.3% of GDP, corporate taxes are just one-third of what they were fifty to sixty years ago and about one-third of the OECD average (see chart above).

There can be little doubt that the United States is, by the standards of its own history and its international peers, a low-tax (and low-government-service) nation. But, does Bartlett overstate the case? Perhaps. He only focuses on federal taxes. All nations collect taxes at the sub-national level as well. American state and local taxes account for approximately another 10% of GDP, above the OECD average for sub-national taxes (see the chart below - where (l) means local and (s) means state, regional or provincial taxes). Even taking state and federal taxes together, American taxes are still quite low compared to other wealthy countries, but the issue is a bit more complicated than Bartlett suggests.

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