NCPA - National Center for Policy Analysis

United States Relies More on Individual Income Tax than OECD Peers

November 17, 2014

How does the United States' tax policy stack up to other developed nations?  Compared to its peers in the OECD, the United States is more reliant on personal income taxes and less dependent on consumption taxes, according to Kyle Pomerleau in a report for the Tax Foundation.

Countries in the Organization for Economic Cooperation and Development (a group of 34 developed nations) use a variety of taxes to raise government money: corporate taxes, individual income taxes, consumption taxes (taxes on goods and services), property taxes and social insurance taxes. They differ in how much, or how little, they rely on the different revenue-raisers. Pomerleau explains:

  • In general, 32.9 percent of OECD tax revenue comes from consumption taxes, followed by 26.2 percent from social insurance taxes and 24.1 percent from individual taxes.
  • The United States, on the other hand, relies most on its individual income taxes, at 37.1 percent after accounting for federal, state and local taxes.
  • Following the income tax, U.S. governments most heavily rely on social insurance taxes (22.8 percent of the total), consumption taxes (18.3 percent), property taxes (12.4 percent) and corporate taxes (9.4 percent).

Why are consumption taxes so much more popular among OECD countries? Part of it is due to the value added tax (VAT), which has grown in popularity in Europe. While only 4.6 percent of consumption tax revenue among OECD countries came from the VAT in 1965, 49.7 percent of consumption tax revenue came from the VAT in 2011. What is a VAT? It's a tax on goods at multiple stages of production. As economist Dan Mitchell has explained in a report for the Heritage Foundation, the VAT tends to create higher tax burdens and more government spending.

Source: Kyle Pomerleau, "Sources of Government Revenue in the OECD, 2014," Tax Foundation, November 12, 2014.

 

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