Wednesday, May 17, 2023

What if the United States were to increase its taxes...?

I recently looked at the United States' ridiculous debt cliff snafu, which rears its ugly and embarrassing head each year, and puts the world's richest country in limbo, teetering on the edge of bankruptcy, while political machinations play out.

It happens because the US spends more than it raises in taxes each and every year, so the national debt keeps in rising inexorably. This currently stands at a mind-boggling $31.46 trillion, which is about 122% of GDP, higher than any other developed country except Italy (145%), Greece (177%) and Japan (261%), Which suggests that there is a systemic problem: it does not raise enough in taxes to pay for its profligate lifestyle. The idea of raising taxes, though, is anathema in the States, and political suicide. The Republicans would lower them still further given half a chance, making the chronic debt problem even worse.

But are American taxes actually that low? A look at total tax revenues as a percentage of gross domestic product (GDP) shows the USA as somewhere in the middle of the pack, with a tax-to-GDP ratio of 27.1%, putting it at no. 56 in the rankings, just below Australia (27.8%) and just above South Korea (26.9%). But a look at just which countries lie above and below it gives a more illuminating picture.

The highest tax-to-GDP counties are almost all European, which may come as no surprise, headed up by France (46.2%), Denmark (46.0%), Belgium (44.6), Sweden (44.0) and Finland (43.3%). In fact, the top 30 countries are all European, with only Cuba (40.6%) preventing a clean European sweep. These are, in the main, high-functioning developed countries, with strong social safety nets.

Most of the countries with lower tax-to-GDP ratios, on the other hand, are poorer countries from Asia, South America and Africa, with poorly-developed state social programs, as well as wealthy Middle Eastern countries with more oil than sense. The only developed country with a significantly lower ratio than the USA is Ireland (22.6%), which makes a rather controversial virtue of its low taxes in an attempt to attract multinational headquarters.

Just for reference, Canada's taxes-to-GDP ratio comes in at no. 33 with a ratio of 32.2%, alongside Brazil and New Zealand. Canada's national debt sits at 106% of GDP, better than the USA, France and Spain, but still significantly higher than Australia, New Zealand and most other European countries with whom we might wish to compare ourselves.

Anyway, my point in going into all this is that the USA could stop constantly adding its national debt by increasing its taxes to a level consistent with most other developed countries. Not that that is ever going to happen, but just putting it out there.

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