Are Taxes Too Low in the USA?

In the Businessweek article, the newly elected French President, Francois Hollande, promised while campaigning to raise the top income tax rate in France to a stratospheric 75 percent. Even if he doesn’t follow through with the audacious tax increase, discussing that type of tax on the wealthy would never fly here. Obama is shunned when he mentions marginally increasing the tax on the wealthy.

According to a Scripps Howard News article by Thomas Hargrove published at KSHB.com, the U.S. trails most developed countries in their complete income tax rates. The United States pays just 24 percent of its total economy (or gross domestic product) to those collected by every level of government, according to the Organization for Economic Cooperation and Development.

In contrast, Australians pay 27 percent, Japanese pay 28 percent, Canadians 31 percent Band the Swedes a whopping 46 percent. Granted, many of those countries offer a greater safety net to their citizens in the way of social benefits. Yet, the lower taxes collected in the United States gives our citizens an advantage to save and invest more than our developed nation cohort.

Additionally the value added tax that many countries impose on every purchase make our local and state sales taxes look downright anemic. In fact, my Brazilian friends flew to Miami to purchase items for their new baby. They still came out ahead financially, even after the cost of the airfare and hotel, than if they had purchased these same baby items in their home country. Taxes add tremendous costs to goods in other countries. Consider what you pay for this popular technology item internationally. You can buy an Apple iPad for $499 in the United States. In many developed markets, that same iPad goes for up to 50 percent more. In Spain the same tablet runs $742 and tech savvy Japan charges $621 for the iPad.

I dislike paying taxes as much as the next person, but when I step outside and breath the clean air, drive on the updated highway system, drink water from the faucet, walk on our safe streets, visit a local or national park, I appreciate the services our taxes provide. On the other hand, the tax system is burdensomely complicated and unnecessarily confusing. It’s way too easy to game the system and the hours lost in completing a basic tax return could be pleasantly spent on numerous other activities. I confess, I still haven’t completed my 2011 tax returns and am under the graces of the allowable tax extension. If they were easier to complete, I wouldn’t have chosen to delay the process.

Tax Recommendations

1.    Appreciate the benefits we receive from our tax dollars. They are vast and make our country a wonderful place to live.

2.    Advocate with elected officials to simplify the tax code for the good of all.

3.    Realize that our tax rates are reasonable in comparison with our developed nation’s comparison group.

4.    Hold legislators accountable to get rid of the programs which waste our tax dollars.

With the sun setting on Bush’s tax cuts this year, our tax rates are likely to return to level last seen during President Clinton’s administration. Remember those eight years? We had a bout of economic prosperity in spite of higher tax rates. As our economy picks up steam, a slightly higher tax burden may be camouflaged with higher employment and salaries. In the mean time, as you fret the deductions on your regular paycheck, keep a perspective and realize your tax burden could be much worse. 

Barbara Friedberg, MBA, MS is editor-in-chief of BarbaraFriedbergPersonalFinance.com where she writes to educate, inspire, and motivate for wealth in money and life.