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Tax Burden By Country (How the US Compares Internationally)

(AlanCleaver 2000)

Ever since disgruntled colonists dumped British tea into Boston Harbor, Americans have despised taxation more than any other nation. Nor is their loathing unjustified. Regardless of one’s political views, few of us are entirely satisfied with the return on our tax dollars lately. However,’s breakdown of income taxes in about two dozen other countries reveals that Americans could have it a lot worse. While federal income taxes in the U.S. generally consume between 15%-35% of an individual’s income, citizens of Belgium lose anywhere from 25%-50% to income taxes. Japan can be even more confiscatory, with tax rates ranging from 5% on low amounts of income to as much as 50% on higher amounts. Likewise, the Netherlands imposes tax rates as high as 52% on high income. Israel, Italy, Germany, Austria and Spain all levy taxes above 40% on high income individuals. But no country is as grasping as Denmark, with a top personal income tax rate of 59%. In view of such alarmingly high foreign tax rates, it’s no wonder MSN quoted Urban Institute senior fellow Eric Toder as saying “…when you look at the overall tax burden, the U.S. is quote low.” Overall tax burdens aren’t the only important consideration, however. To investigate the issue further, TurboTax researched American vs. foreign tax composites, where tax dollars go, and unusual taxes here and abroad.

Tax Composite of the United States vs. Other Countries


A popular discussion topic in most countries is the distribution of income taxes – that is, who pays the most. While much is said and written about who should pay more or less, surprisingly little attention is given to who actually pays more or less. A look at the data on tax distribution in the United States, for instance, reveals that high income individuals pay an enormously disproportionate amount of total income taxes in the country. The Tax Foundation’s Fiscal Facts report shows that the top 1% of income earners (1,410,710 people) pay 40.42% of all income taxes in the United States. The top 2.5% (5,642,839 people) pay 20.20% of total income taxes, while the top 5% (a combined 7,053,549 people) pay 60%. The top 10% as a whole pays 71.22%, while the bottom 50% of taxpayers account for only 2.89% of all income taxes. Indeed, the Tax Foundation’s Scott Hodges cited ,”…an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations.”

While most western European nations have similarly progressive taxation structures, the “super-rich” are not always saddled with so much of the burden. ThisIsMoney (the UK’s Financial Website of the Year) reported in June 2007 that, “…only a fraction of Britain’s super-rich are paying income tax.” While “…at least 400 UK-based individuals earn, or are capable of making, £10m a year”, it was determined that “…only 65 paid income tax, according to the latest figures obtained under the Freedom of Information Act.” The tax structure in Canada mirrors that of the United States, with The Canadian Encyclopedia stating that, “…Canada’s most affluent citizens already pay the majority of the nation’s tax bill, and our reliance on revenue from the wealthiest citizens is growing.” This is confirmed by the fact that although, “…the wealthiest 10 percent of tax filers earned 35.7 percent of the total income” between 1990 and 2002, “…1976 and 2004, the after-tax income gap between the richest and poorest families barely budged from 8.1 to 9.9, proving Canada has nearly perfected its Robin Hood routine.”

Clearly, the progressive tax structures of most wealthy nations depend disproportionately on high earners for tax revenue. The recession has only amplified this fact, as the Washington Post discusses in its article “World’s Wealthy Pay a Price in Crisis.” India’s government has “…has launched an effort to track down billions of dollars in “black money” — or hidden profits of the rich”, and there have been “… fresh tax increases for high-earners in the Netherlands, France, Ireland, Italy, Belgium and several other countries.”

Where Tax Dollars Are Spent


Another controversial topic is how our income taxes our spent once they are collected. Various groups report on percentages of tax expenditures they find objectionable or wish to see increased. The War Resisters League, for instance, reveals that military spending (on both current and former personnel) account for 54% of income tax revenue. A considerable amount of income tax money also goes to social programs in the United States. Assuming a hypothetical individual with a yearly income of $52,000, MSN stated in 2007 that, “…about $219.40 of every $1,000 of your taxes went to pay for health care last year” – even if you do not have health insurance. Likewise, “…some $206.60 of the weekly paycheck went to the Social Security fund.” Another $95 a week goes to Medicaid. Military spending, of course, consumes a large share of income taxes – $48 from our hypothetical individual for troop salaries, %76.70 for “…operating and maintenance costs”, and $25.80 for research and development.

Income taxes are spent similarly in other wealthy countries, with the notable exception of military spending. The vast differences in military spending among wealthy nations is reflected in Wikipedia’s list, which shows the United States spending over $600 billion- good for 41% of all military expenses in the world. By contrast, China, an economy growing by leaps and bounds every year and routinely said to be in competition with the United States, accounts for only 5.8% of world military spending. France and the United Kingdom spend even less on defense – $65.7 billion and $65.3 billion, respectively – good for 4.5% each of world military spending. The difference in such countries is generally re-allocated to social spending and other government activities.

Unusual Taxes at Home & Abroad


Unpleasant as income taxes can be, they are at least relatively straightforward. The same cannot be said of all taxes, both in the United States and abroad. It’s difficult to imagine, for instance, why Tennessee recently “…became the latest of more than 20 states to tax illegal drugs.” Per state law, those in possession of illegal drugs “…have 48 hours to report to the state and pay your tax” – but you are not required to identify yourself, according to MSN. Arkansas residents are taxed for getting nose rings and tattoos, while Alabama inexplicably singles out decks of playing cards for taxation. Canada exempts breakfast cereals from taxes if they contain toys or bonus items, so long as those items are “…not liquor, wine or beer.” On January 8 2010, BusinessWeek reported that France was considering a “Google tax” that would “…tax ads on Web sites such as Google, Yahoo, and Facebook to generate funding for artists and cultural projects.” But that’s nothing compared to Germany, where the UK’s Mail Online reported that a teen might lose half of the £8,000 she auctioned her virginity for to a 50% tax on prostitution.

Taxing Times

Virtually every wealthy nation has seen tax increases on some group or another (usually high income earners) as a result of the recession. However, it is important not to lose sight of important and enduring differences in how these nations collect income taxes. Depending on how much tax is collected, on whom the burden primarily falls and on what the money is spent, a nation’s very existence and standard of living can be dramatically affected.