Why Is Everyone Whining About Taxes?

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The Economist published its annual graph showing total taxes as a percent of G.D.P. for a large number of rich countries.

Not surprisingly, there’s little year-to-year change — and the U.S. is near the bottom. We are a low-tax country; our average tax rate, counting all taxes, hovers above 30 percent.

Why do we hear so many more complaints about high taxes than I hear in the European Union, where taxes are a much higher percentage of G.D.P.? It’s hard to believe our governments are less efficient than European governments — and that we’re getting less bang for the buck than Europeans get bang for their tax euros.

And it certainly is not the case that our taxes are structured so that the average person pays the top rate: The top federal marginal tax rate kicks in much farther up the income distribution in the U.S. than in European countries.

So what is it?

After all, Joe the plumber pays far lower taxes than Josef or José the European plumber does, so why should Joe’s fellow citizens have any sympathy for him?

One economic answer to this question is that we all expect to become rich and don’t want to have very high taxes on our expected large incomes. Yet today, income mobility is no greater in the U.S. than in Europe, so our expectations do not seem rational.

What’s the answer? Are we more selfish than Europeans? Are our governments less efficient?


DaveV

Our taxes don't cover what the government spends. Every president, including Clinton, for decades has added to the federal deficit. I would be more interested in what percent of the GDP the US government spends vs what the Europeans do.

Howl

I find it vastly amusing that so many of our European commenters continue to reiterate the theme of 'oh, just hush and go along with it, you'll be okay.' Well, guess what? We left Europe precisely because we don't like the idea of rolling over and calmly taking it from an overweening government which thinks that it is the focus, rather than the citizen.

I'll take the United States, thank you, warts and all. We'll be over here; just call us when you need to be bailed out from the next world war.

Eric

I think it also comes down to heritage. Europeans, and those who pay a lot of taxes, are historically loyalists who did not emigrate to the Americas. They are essentially the descendants of serfs and are genetically disposed to enjoy paying to their feudal lords. Those of us who live in the Americas reject those notions and are genetically predisposed to enjoy self determination.

There is a self selection bias in the data.

Mercutio.Mont

The numbers are incorrect:

Gray economies in European countries are much larger than in the US. Since taxes are not collected on gray economic transactions, this effects to show a lower than actual GDP and therefore larger than actual proportional tax burden.

Correct for this effect, as well as the previously stated fact that health care is frequently paid for via taxation in European countries, and we may see that the overall proportional tax burden in the US is not so different after all.

Mike

Americans have decided they'd rather die from lifestyle diseases, poverty or domestic crime than from a single external bullet, so they place their tax dollars accordingly.

I'm somewhat puzzled at the number of people above who consider Europe to = Rest of World, or Europe = one country. It's like Europeans = "liberals" or whatever your favorite out-group epithet is. Really people (American people that is) you are going to implode if you don't get a grip on your anger-management issues.

Neil

@Kimota94

Last comment, a clarification on Kimota's post. "Canada" doesn't have a top marginal rate of 46%-48%. It just doesn't. Kimota's combined provincial and federal tax may come to that, but the top marginal rate is 29% for federal taxes. Where I live, the provincial rate is a flat 10%, so the highest marginal rate possible here is 39%.

The filing system is also a bit different from the US, as all tax is based on personal income, not family income. (Though some credits are transferable within a family), so a housewife who starts working will get low rate on the low end of her income, the same as everyone else.

Michael

Americans are more bothered by corruption and government waste? Best way to avoid that is give the governments less.

Americans trust their governments less? If they cant be trusted or trusted much then less money given is safer.

American consider government more part of the problem rather than solution? No need to feed the problem.

Neil

Also. Pork projects are illegal.

Wow

"It does depend what you get for your taxes. Health care included? A safe pension? 6 weeks vacation? Decent safety net if laid off?

Taxes are too high in Europe, no doubt. But there is an upside.

— Posted by Will"

Have you ever gotten medical "care" in europe? It is horrible. It is ok if you have the sniffles or have an ingrown toenail. Anything more than that and well you can wait to be prioritized, wait to get scheduled, wait until you die. Then the hospital saves money by not performing your surgery.

A safe pension? Have you looked at the financial troubles of Italy? All of their young professionals flee the country. Who is going to insure the pension is safe? Just wait a few years and you will see how safe the state pensions are...

6 weeks of vacation... Like they need it, they aren't productive when they are working.

If you get laid off, get off the couch and go find another job! Don't rely on the Gov'ment to save you.

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pH1

The US is not a low tax jurisdiction.

In a world of fiat currency, government expenditures is a better measure of actual tax upon the wealth of citizens and currency holders than cash tax reciepts.

Cash taxes reflect only the incidence of the portion of government expenditures covered by receipts of cash taxes. Deficit spending needs to be covered by subsequent tax collections or the printing of currency (which imposes a tax on all cash holders).

So, the Economists measures understate US taxes by the total annual deficit (including all off budget spending adn commitments).

Neil

Part of it's culture. Americans have a culture of whining about taxes.

But I think the bigger thing is that - Americans do get less bang for their buck. Your government is bloated, and spends vast amounts of resources on "defense" (as much as the entire rest of the world, combined) - something that the average taxpayer sees no real obvious benefit from.

When I pay my taxes - which are on average slightly higher in Canada (though I live in the lowest taxed province by far) - I know that for that money, my bridges don't collapse, all my medical care is covered, and children are getting an education that is competitive in a global market. That observation of government programs that work well and benefit me makes me not resent the taxes, though I still try to reduce them as much as legally possible.

Omair

Maybe it's just habit.

DJH

Isn't one of the axioms of economics, that people or businesses will always want to maximize their profits? If that's the case, your question -- why don't people like to pay taxes? -- is nonsensical, since it's assumed that no one wants to pay any more than they have to, for anything. Hence, no one wants to pay any taxes if they can help it ... and if they must pay taxes, they'd rather pay as little as possible.

There are, of course, problems with this premise. People do not, it seems, always maximize their returns ruthlessly. The fabled homo economicus is a creature of myth, not reality. Nevertheless a great deal of economics presumes its based upon its existence.

I'm left to wonder, then ... why ask this question? Isn't it its own answer, especially for an economist?

Scott W

@Ralphinjersey wrote:

> I can’t seem to get my head (or is it hands?) around the argument that higher taxes at the higher end of the income spectrum are a disincentive to work harder etc.

It has nothing to do with personal work ethic, but has everything to do with economics. I can't say it better than Paul Graham did here:

http://www.paulgraham.com/inequality.html

> Nor can I muster much sympathy for the 20 percent who bear 70 percent of the tax “burden,” when in fact they probably control about 95 percent of the wealth. Seems to me like they’ve got a pretty sweet deal. Where do I sign up?

You start by working hard in high school and college, then you start your own company and work your butt off. Most of the people we call wealthy got that way by taking enormous personal risks. It's well known that most of the wealthy (not including the robber barons, of course, but they're a small percentage anyway) work far more than the general population, who are content to pay their 9 to 5 "dues" and then kick back in front of the tube. There's almost always a good reason that the Joe Wealthy makes more money than Joe Average.

What I can't grasp is why people think that our inherent or learned inequalities which are amply rewarded in most fields (looks, athleticism, braininess, scholarship, artists, etc.) should not apply to people with a gift for making money (which I do not possess, by the way, but I'm working on it).

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Andrew

I work in California, USA, and I have colleagues who do the same work in the Netherlands. They make about _half_ what I make, and pay higher taxes, higher gas prices, and higher prices for just about every consumer good. So while the highest marginal rate may kick in at a lower income level in Europe, it probably kicks in at a similar percentile of income earners, since a six-figure earner is rare in Europe but common in the USA.

lark

I think Americans suffer from much higher insecurity, because we pay for more out of pocket (health care, college tuition, 401K vs pension, etc) and our jobs are much more insecure. We have much lower unionization and much higher outsourcing. we are much more at risk than Europeans. EU folks get security for their tax dollars.

I think the chronically insecure nature of American society is what really turns us into a nation of whiners. when you are as vulnerable as we are to the next big shock (layoff, for example) the government share of our incomes is resented. Plus insecurity has gone up and up and up. We may have low inflation but we have soaring insecurity. We expect more insecurity in the future, and we expect that govt will not be able to help. So we just want to hold on to what we have.

I don't agree with this view of taxes btw, I am just observing.

Greg

I think Jonathan's got it right. The more homogenous the society, the more willing the well-off are to share the wealth with their less fortunate brothers. That's why the Swedish elites seem not to care that much that they don't have much greater spending power than their janitors (or plumbers).

ruralcounsel

Perhaps the Europeans just need more government oversight and paternalism ... (and in return, every couple of generations they get to learn to goose-step). No thanks, my ancestors left that place for a reason, and I haven't seen reason to doubt their choice yet.

As it is, it's hard to see that any tax money going to government isn't just being flushed down a black hole. I'd be happy to forgo most of their domestic "services" in exchange for keeping what I earned.

Americans need more control over where their tax dollars go. I propose the tax rates be set, so we all get to calculate how much we owe, just like now, but then we get to pick what programs, departments, offices, projects, programs (within some manageable sized list) different percentages go to. Just like allocating your 401(k) portions of your paycheck among a list of mutual funds.

Wouldn't that put a twist in the knickers of Congress and the lobbyists!

What heavily funded program would get very little, do you suppose, and conversely, what underfunded program would get a bunch of support?

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Chase

What's so wrong about wanting to keep more of what we earn? And who cares what the Europeans think? They like their system, and go for them. Many here in America DON'T like our system. People have different tastes and preferences. You, an economist, should know that!

Radiantsoul

Perhaps in Europe we get more services from government that Americans need to buy with post tax dollars. So you need to lower taxes so you can have more disposable income to spend on things that Europeans get for "free".