Friday, April 27, 2012

Tax burdens and OECD nations. A beginning.

Funny that an organization with
predominately European nations
has an image that hides Europe.

Salve Citizens!
Browsing the news this morning citizens, and I came upon this article on msn.  The title is: US taxpayers get off easy, compared to some others.  Well this will be interesting.  Let’s dive in shall we?

"If you just filed your taxes this month, chances are you’re not feeling a huge amount of goodwill toward the U.S. tax system.

Still, you may want to hold off on those plans to move overseas to avoid the tax man.

The Organization for Economic Co-operation and Development this week released a tax comparison for typical wage earners in it 34 member countries, mainly the world's wealthier, democratic countries in Europe, Asia and the Americas.

Surprise: Most of them are paying a lot more than you. (This isn’t really a surprise to most Americans.  Even if they don’t know any facts about taxes in other countries, Americans, from my experience, assume that we pay less than ‘Socialist’ Europe.)

The OECD report looked at the total labor costs for full-time, private sector workers – that is, gross wages plus whatever taxes the employer is required to pay on that employee’s behalf. Then they calculated how much of that total went to federal, state or regional taxes.

In the U.S., an estimated 29 percent of the average worker’s total labor costs went toward taxes last year. (So it is estimated that almost a third of your paycheck goes to the government.  Maybe it’s just because I received a parking ticket because I was late out of meeting.  But the idea that a third of our labor cost went to taxes irritates me, and would probably explain why, along with regulations; we are losing jobs to overseas competitors.)

That’s far lower than Belgium, Germany, Hungary and France, where taxes accounted for about half of an average worker’s labor costs. (But they get all those nice social services right so it’s worth it right? Except even with obscene taxation levels they cannot pay for their programs; yes the link is to an article about riots due to gas shortages and pension reform, but trust me citizens it is all related.)

There are a few countries where workers are getting more of a tax break. The countries with the lowest tax bills included Mexico, New Zealand and Chile, where just 7 percent of the average worker’s total costs went to taxes. (Wonder which ones have higher growth rates and generally better economic prospects?)

The OECD found that taxes increased in 26 of the 34 OECD countries last year. The U.S. was one of the few countries to see a decrease because of cuts in Social Security contributions. (Good, that program is a scam anyways.) That offset the end of the Making Work Pay tax credit.

For comparison purposes, the calculations assumed the average worker was single and without children. The OECD did separate calculations for other individuals and families with children in its full report.

Matthias Rumpf, a spokesman for the OECD, said the U.S. ranks lower than average in part because it does not have compulsory health care. That means Americans’ health care costs aren’t included in their total taxes. (Well we learn two things here.  1) Health care isn’t free and it costs money. And 2) that additional cost health care would add to our tax base would be quite a bit)

The OECD also didn’t include mortgage interest rate deductions in its calculation, in part because it’s difficult to make assumptions about how much a person would pay and thus deduct. (Frankly things like credits and deductions should not factor into the tax rate.  People and business do not make decisions on where to live and do business because of business. Yes many businesses will do business in areas that offer tax breaks, but usually there are other benefits as well such as good location and a generally sound business environment.  A friendly business environment will beat a one off tax break, which might not exist in a few years, any day.)

Do you think Americans should be paying more or less in taxes? Discuss it in the comments below or on our Facebook page. Do you think Uncle Sam is fair when it comes to income taxes?”

Fortunately for us 79% of Americans do not want to pay any more in taxes, and a full 60% actually want to see taxes decrease.  Now I know that almost as many Americans would cry bloody murder if whatever government program they used is cut off, but we can work on that.  The article gives us an interesting bit of information when it mentions the OECD nations and their tax rates.  And given that I have gotten the quips and my opinions out its time to do a little analysis.

The OECD is a collection of high income or middle to high income nations.  Membership generally means that you are considered a developed nation or very high level developing nation.  Another way to look at is by the HDI index, you probably would not be an OECD nation unless you are at least in the 2nd quartile in terms of Human development.  What the chart shows below, admittedly from a very small sample, is that the nations with lower taxes burdens had faster growing economies. 

As we can see here from the graphic, it looks like the nations with the low Tax percentage of Labor also enjoy higher growth rates.  And a correlation analysis does show that there is a negative relation between the tax percentages and growth rates.

 Now, this in and of itself doesn’t mean anything, the data sample is too small to make any confident conclusion, I ran a regression analysis and the goodness of fit, or R Square in the Regression statistics, was well below the .80 generally accepted.   For those who do not know what goodness of fit means, it simply states whether or not the regression formula that was calculated does a good job corresponding with the data that was used to create the formula.  If the regression formula doesn’t fit very well it either means that there isn’t a correlation between the variables, or, as I think is the case in this instance, there is too little data presented.

 Moreover, of the economies selected the entire one the ones with the higher growth rates were still developing nations, albeit very far along the development process.  A lot of things a factor into economic growth; poverty level of population, population growth rates, energy usage, technology, business environment and so on and so forth. Taxes make up a small portion of the many variables that will affect your growth rates, but they do affect them make no mistake about that.

I will do more thorough statistical analyses on the OECD nations in the future.  It is interesting to see how much tax burdens affect growth rates in relatively developed economies.  I am predisposed to think of them to think that they are harmful to gdp growth, but in the end you have to make a conclusion based off of data.  I think that a sample of the 34 OECD nations would be large enough to let us now if tax rates as a % of labor income had an effect on growth or not.  I am also pleasantly surprised by Chile.  Their tax rates are very low, they enjoy good economic growth and they have made up considerable ground to their next door neighbor, Argentina. 

As always citizens humbly ours,

Cogitans Iuvenis

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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.