Tax Day is always a grim reminder of how much of the money you earn you don’t get to keep. But taxes are the price of living in a civilized society (ahem) and here in the United States, the tax burden isn’t all that bad, in general.
The typical American pays 31.5% of his or her income in taxes, including federal, state and local income taxes, plus the amount taken out to fund Social Security and Medicare. (That figure also includes the employer contribution to Social Security and Medicare, which might otherwise be added to your paycheck as income.) That’s a big chunk of money, but it’s lower than in most other advanced countries.
The average tax burden in developed countries is 36%, according to the Organization for Economic Cooperation and Development. Twenty-four advanced countries have a higher tax burden than the United States, while only 9 have lower taxes. Two countries similar to the U.S. have very similar tax burdens: Canada (also 31.5%) and the U.K. (31.1%).
Belgium, Austria and Germany have the highest tax burden, on account of extensive social assistance programs and nationalized healthcare (which virtually all developed countries have, except for the U.S.). At the bottom of the list are Chile (7%), New Zealand (17.2%) and Mexico (19.5%), countries that don’t fund big militaries and have low social security taxes. Here’s an overview of the tax burden -- also known as the tax wedge -- by country:
For all the angst over taxes in America, the tax burden on most people has declined during the last 35 years. President Obama raised some taxes beginning in 2013, but that mostly affected high earners. For many middle-income families, the effective federal tax rate -- after deductions and other tax breaks -- is the lowest it has been in decades, as this data shows:
Still, there are plenty of problems with the U.S. tax system. For starters, Americans feel they’re getting lousy government for the taxes they do pay, which is evident in numerous polls showing that approval ratings for all three branches are at or near record lows. Americans also feel the country is heading in the wrong direction, even though the economy is strengthening and no other nation seems to be in better shape at the moment. Again, U.S. taxpayers don’t feel they’re getting their money’s worth.
Washington also borrows to pay for about 15% of its spending budget, which means American taxpayers are actually getting more than they’re paying for, even if the opposite seems true. All that borrowed money -- which adds up to the $18.2 trillion national debt — has to be paid back, of course, which means future taxpayers may truly end up getting less for their money than they put in, since they’ll be paying the debts of prior generations.
The U.S. tax code is also overcomplicated and weighed down by hundreds of loopholes that tend to benefit special interests and filers able to pay for sophisticated tax advisers. Of course, there are also tax breaks for ordinary working people, such as the earned-income tax credit, the mortgage-interest deduction for taxpayers who own a home, and exclusions for employer-provided health insurance and retirement savings. There’s something for everybody in the U.S. tax system, which makes it both effective and maddening.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.