The Organization for Economic Cooperation and Development (OECD) estimates that in 2010 American individuals and businesses paid taxes (federal, state, and local) that amounted to 24.8 percent of US gross domestic product. That compares with 33.8 percent of GDP for the OECD overall, encompassing more than 30 advanced economies.
That’s a big gap. Nine percentage points of GDP, to be precise.
And every other large advanced economy in the world ranks higher than the US in the percentage of GDP paid in taxes. On the OECD list, only Chile and Mexico have lower overall taxes as a share of GDP (about 20 percent and 19 percent, respectively).
Democrats can point to this as evidence that higher taxes should be part of the solution.
In fact, although this idea is politically unpalatable, Congress could close America’s budget deficits over the rest of this decade entirely through tax hikes – and America would still have below-average taxes among OECD nations.
As an illustration, consider that Obama's most recent budget plan (which he proposed in February) envisions bringing deficits down to 3 percent of GDP at the end of the decade through relatively modest changes to current policy: some spending restraint and some tax hikes that amount to about 1 percent of GDP. So, operating from the Obama template, even if you eliminated the plan’s spending restraint, the tax hikes needed to eliminate deficits altogether wouldn’t be large enough to push US taxes up to 34 percent of GDP.
OK, we’ll get real now. Politically that scenario is a nonstarter. The presidential election was a contest between Mitt Romney, who wanted to keep taxes low for all Americans, and Obama, who pledged to keep taxes low for 98 percent of households – while raising them modestly for the rich.
On economic grounds, too, just because other nations tax more doesn’t make their level of taxation the right one. In fact, European tax rates vary widely, ranging from nearly 48 percent of GDP in Denmark to 27.6 percent in Ireland.