NCPA - National Center for Policy Analysis

Tax Burdens and Growth

May 19, 2003

The effect of high taxes on economic growth has reduced relative living standards of most developed countries compared to the United States, according to data compiled by the Organization for Economic Cooperation and Development (OECD) covering 1975 to 2001.

Adjusted for purchasing power -- the amount of money it takes to buy the same goods in each country -- the OECD data show:

  • In 1982, French per capita income was 82 percent of America's.
  • But French taxes now absorb 46.3 percent of their gross domestic product (GDP) while in the United States the number is 29.4 percent.
  • The result is that French GDP per capita is now only 71 percent of America's.

In fact, at a projected 29.2 percent of GDP in 2004, the United States will have the lowest tax burden of any of the 27 OECD countries. Most OECD countries appear to have peaked in comparison to U.S. economic performance:

  • German per capita GDP peaked at 81 percent of U.S. per capita GDP in 1991 and has since fallen to 74 percent, in part due to a tax burden of 42 percent.
  • Canada reached 92 percent of U.S. per capita GDP in 1982 but has fallen to 82 percent of our level, with a tax burden of 37 percent.
  • Japan had 90 percent of U.S. per capita GDP in 1991, but has fallen to only 78 percent, while government spending increased from about 30 percent to 38 percent of GDP.

Sweden's tax burden has been a steady 54 percent for a decade and is the highest of the OECD countries. Its per capita GDP fell from 84 percent of the U.S. level in 1975 to 70 percent in 2001.

Tax burdens in Australia, South Korea and Ireland are only slightly larger, and their growth rates have been relatively high.

Source: Ronald D. Utt, "The 2001 Tax Cut Did Make a Difference," Backgrounder No. 1653, May 9, 2003, Heritage Foundation.


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