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Only Chile and Mexico Tax Their People and Companies Less Than the U.S.

Canadian newspaper, The Globe and Mail, has recently published an excellent article about the need for the United States to raise its taxes, especially on the wealthiest Americans, as part of finding a long term solution to the debt problem.

Simply speaking about raising taxes is enough to throw the average American into a patriotic tizzy. After all, this is a country founded by men who refused to pay higher taxes on their tea. However, America is one of the lowest taxed industrial nations in the world, TG&M asserts, and has room to raise taxes. Among wealthy OECD countries, only Chile and Mexico tax their people and companies less.

“Historically and internationally, the U.S. can’t be categorized as anything other than a low-tax country,” remarked Gordon Betcherman, an economist and professor at the University of Ottawa’s school of international development and global studies.

“Either Americans don’t realize their economy is taxed less than other major economies, or they just have a different standard of what an appropriate tax level is,” said Prof. Betcherman, who spent a decade at the World Bank in Washington.

The average American’s tax burden in 2009, when viewed as a percentage of gross domestic product, was 24 percent. This is lower than it was in 1965. This is a number far below that of our international peers.

That (24 percent) compares to 31.1 percent in Canada, 34.3 percent in Britain, 42 percent in France, 37 percent in Germany and 43.5 percent in Italy. The Japanese, Australians and South Koreans all pay significantly more.

Part of the problem lies in that Americans expect too much to be given them for what they are paying. According to Gary Hufbauer, a senior fellow at Peterson Institute for International Economics in Washington and a former top tax official at the Treasury department, “Our expectations in terms of entitlement and defense programs far exceeds the willingness of people to pay for them,”

For decades now, the U.S. has increased spending, but hasn’t ratcheted up taxes to pay for bigger government – the military, health care, pensions and the like. The country has been generating tax revenue equal to roughly 18 percent of its economy for a generation, but spending has climbed steadily to nearly 25 percent of GDP, from roughly 16 percent in 1965. The results are huge deficits, and more than $14-trillion (U.S.) of debt.

One solution to the problem would be to cancel the Bush–era tax cuts, or to simply let them expire at the end of 2012. This would return tax rates to that of the Clinton Era, a time of economic surplus. To think that Americans are paying lower tax rates now than they were 12 years ago while currently supporting two wars and trying to guide itself through an economic crisis is borderline absurd. Loopholes need to be closed and corporations should not be allowed to get out of their tax responsibilities. Chuck Marr, director of tax policy at the Center on Budget and Policy Priorities in Washington and a former economic adviser to Bill Clinton and former Democratic Senate majority leader Tom Daschle, says that responsibility lies on Republicans to make the bipartisan effort work.

The Republicans have put themselves in a box. Carefully crafted tax increases offer a relatively easy way out that could mitigate the economic damage caused by draconian spending cuts and reverse income inequality between rich and poor. But the tax option has become a political stumbling block in the Republican-controlled House of Representatives (as are deep spending cuts in the Democratic-held Senate).

“It goes back about 20 years. The Republicans have signed on to this ‘no-taxes, ever’ pledge since Bush, the father, was president, and now this is being tested,”

“Tax increases are the only way to ensure that high-income households pay a fair share of the deficit burden,” Mr. Marr said. “Without higher taxes as part of the fiscal-reform package, middle- and low-income households, which tend to feel spending cuts most acutely, will end up bearing almost all of the burden.”


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