Taxes, American Style

Monday, September 27, 2010 \AM\.\Mon\.

A while back Harvard economist Greg Mankiw caused a bit of a kerfufle when he noted that the amount of tax revenues raised by the United States per capita wasn’t much different than the amount raised in Europe. Tax rates in the United States are lower than in Europe, but per capita income is also higher in America, and the two facts seem to largely cancel each other out. Here, for example, are the per capita tax revenues for a handful of developed countries:

France .461 x 33,744 = 15,556
Germany .406 x 34,219 = 13,893
UK .390 x 35,165 = 13,714
US .282 x 46,443 = 13,097
Canada .334 x 38,290 = 12,789
Italy .426 x 29,290 = 12,478
Spain .373 x 29,527 = 11,014

Now granted, European countries tend to spend their tax revenues differently than we do in the U.S. For example, we spend more on defense, whereas they spend more on welfare. However, to some extent Europe’s apparently larger welfare state is an optical illusion. It looks bigger than it is, because the rest of the economy is so small.

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