Taxes and Taxes

Over the years, various commentators have made various tax comparisons between the United States and European countries on the amount of taxes that are paid, or the tax rates that are paid. Unfortunately, most of the comparisons are anything but “apples to apples” comparisons. For example, regardless of what the various tables say, U.S. tax rates on personally earned income range effectively from 0% to somewhere above 50%. A self-employed person who lives totally on cash, with an income below $20,000, who doesn’t report income can often get away with paying no taxes [yes, I know it’s illegal, but it still happens]. On the other hand, an individual who makes, say, $450,000 in salary and lives in New York City might easily pay more than 40% in taxes and have a marginal tax rate of close to 60% when one includes FICA, state and local income taxes. And those rates are actually higher than those in many European countries that Americans consider “high tax.”

How does this happen? First, because the United States is a federal representative republic, the states can levy income taxes, and in some states, such as New York and Maryland, so can local jurisdictions. That means as much as 8% – 10% on top of federal income taxes. Add to that FICA, which can amount to 17% on approximately the first $100,000 of income earned by self-employed individuals [which averages out to more than an additional 4% on $400,000 of income].

Then add property taxes and sales taxes on top of those.

Canada has provincial taxes, but from what I’ve been able to dig up, most European countries don’t have the equivalent of state taxes, but a number do have the equivalent of FICA/Medicare taxes. Some include that in the individual income tax rate. On the other hand, in places like France, they also have occupation taxes [paid whether you own or rent property] and “wealth taxes” based on net worth, which are also paid annually.

According to an Australian study, Australia has the highest rates for high earners, but the USA isn’t all that far behind if you factor in state taxes [unless you live in one of the few U.S. states that doesn’t have an income tax].

At the same time, the United States now has the highest tax rates in the world on corporate income, not that many corporations are likely to be paying much of it after deducting last year’s losses.

All told, there doesn’t seem to be that much difference between those so-called high foreign tax countries and the United States, not in terms of the tax rates. What the taxes are spent on, though, is another question, and one that would take far more space and time than I have at the moment.