Tax Analysts Blog

Trump Again Exaggerates U.S. Tax Position

Posted on Jul 25, 2016

In his acceptance speech at the Republican National Convention, Donald Trump painted a very bleak picture of a dystopian United States that is spinning out of control. Citing compelling statistics, the GOP nominee highlighted rising violent crime rates, wage stagnation, continuing unemployment, and the dangerous state of the world. And then, toward the end, Trump once again called the United States "one of the highest-taxed nations in the world."

Many of the numbers in Trump's speech were correct, including the rise in violent crime and police shootings, but his claim about taxes simply isn't. By almost any measure, the United States is nowhere near the top of the world in terms of taxes per GDP.

In 2014 the OECD reported that the average tax rate among OECD members was about 34 percent. The number for the United States is about 26 percent. This is actually lower than it was in 2000 (28.2 percent). For comparison, taxes as a percentage of GDP are 45 percent in France, 36 percent in Germany, and 33 percent in the United Kingdom. 

The United States is fairly high-taxed compared with some of the larger economies outside the OECD, particularly the BRICS countries. Russia taxes less than 20 percent of GDP, India is at 18 percent, and China is at 22 percent. But even taking those economies into account isn't really enough to say that the United States is one of the highest-taxed nations in the world. 

The United States does have one of the highest corporate tax rates in the world, at 39.6 percent (a combination of both federal and state rates). According to the Tax Foundation, only Chad and the United Arab Emirates are higher. A high corporate tax rate looks particularly bad because OECD nations have been moving away from relying on corporate levies. The United Kingdom and Japan have both slashed their corporate rates significantly in the last five years, leaving the United States as an outlier.

But the corporate tax has been declining in importance for years. It accounts for only about 11 percent of federal tax receipts. This is partly because of aggressive profit-shifting by corporations. However, the main reason is simply that more and more entities in the United States are organized as passthroughs. Passthroughs include businesses formed as partnerships, most LLCs, and S corporations. These entities are subject to the individual income tax. 

Trump has actually massaged his claim about the United States' position in the world. He used to claim that it was the highest-taxed country. Now it has simply become one of the highest-taxed countries in the world. But either way, the Republican nominee is off. There are perfectly legitimate reasons to advocate cutting taxes, but the idea that the United States is more heavily taxed than its competitors and trading partners isn't one of them.




Read Comments (4)

Edmund DantesJul 25, 2016

I find the 26% figure rather hard to accept. I am barely in the middle class, but I do live in high-tax CT. Between my federal income tax, FICA, state income tax, and property taxes, I'm lucky if I can keep even half of my income. My property tax alone is more than 20% of my income.

Does that 26% number really capture all state and local taxation? Seems unlikely.

Bob GoulderJul 25, 2016

Regarding those OECD statistics ... they are not suggesting that your effective tax rate is 26%, or that the average U.S. taxpayer's effective tax rate is 26%. They're not saying that at all. What they are saying is that annual U.S. tax receipts (federal + state) as a share of the U.S. GDP is 26%. Vastly different concept.

As a side note, it's worth asking why some European nations have such a hefty collective tax burden. (France 45%; Sweden 42%, Italy 43%, etc.) Those percentages generally results from: (1) the fact those countries impose a massive VAT, coupled with (2) relatively weak economic output. Think of a fraction in which the numerator (tax receipts) is inflated, while the denominator (GDP) is diminished. Compared to those nations, the U.S. is necessarily going to reflect a much lower collective tax burden simply by virtue of having a rather large GDP and no VAT.

As for Trump's comments about the U.S. being an over-taxed society ... I am no apologist for him, but I think it's fair to point out that many other politicians over the years have said the same thing. Politicians excel at telling the public things they want to hear -- irrespective of detailed comparative analysis. For whatever reason, we like being told that we're over-taxed ... and in many ways we are, just not when compared to most other OECD member states.

Mike55Jul 26, 2016

Trump's statement was accurate. The article is crafted as though Trump called the United States "one of the highest-taxed DEVELOPED nations in the world," or "one of the highest-taxed nations in the OECD." Trump said neither of these things. It turns out a large majority of the world's nations still have developing economies, and nation's with developing economies collect very little tax. As such, pretty much any developed nation can claim to be "one of the highest-taxed nations in the world."

So Trump's statement was certainly misleading, but to call it incorrect "by almost any measure" is an exaggeration. Ironic, given the article's tagline.....

Toonces the Dri...Jul 26, 2016

The marginal rate is usually more important for most people. Sure, large multinational businesses may be able to engage in base shifting, but middle market companies face a high tax rate and don't have much room for tax planning. They're like folk with mere salary income, who don't have many options for saving taxes. In addition, the regulatory burden has increased by multiples over the past 30 years, in large part for bad reasons. We see this in the tax area with the draconian, overly broad, and extremely poorly written 409A and FATCA statutes and regulations. This is as much a tax as a cash payment to government.

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