Many people assume that the taxes in the U.S. are more severe than in other developed countries. However, facts prove that the US has a much more relaxed tax system, and a tax scale that is far lower than most European countries. The Tax Foundation, a leading independent tax policy nonprofit in the US, carried out research and analysis of the tax systems of OECD (The Organisation for Economic Co-operation and Development) countries, including their corporate tax, individual tax, consumption tax, property tax, and cross-border tax rules.
Countries that were found to have one of the worse tax systems among the 37 OECD countries are Italy (rank 37), Poland (rank 36), France (rank 35), Portugal (rank 34), Mexico (rank 33), and Iceland (rank 32). The U.S. ranks 21.
Of all OECD countries, France’s individual income tax system was found to be one of the worst. According to The Tax Foundation, “France’s top marginal tax rate of 55.4 percent is applied at 15.4 times the average national income.” Capital gains attract a tax rate of 30% and dividends are taxed at 34%. As for the simplicity of their tax system, it takes about 80 hours for a French business to prepare and file income tax.
On the other hand, Estonia has the best tax system among the OECD countries. It has a top marginal income tax rate of 20 percent on wage income, the second lowest in the OECD. Estonia applies the top rate at 0.4 times the average national income.
The Tax Foundation has ranked OECD countries based on 40 variables across five categories. Below is a concise account of The Tax Foundation’s International Tax Competitiveness Index (2021) for simple understanding and comparison of the competitiveness of the tax system of OECD countries.
| Country | Overall Rank | Corporate Taxes Rank | Individual Taxes Rank |
|---|---|---|---|
| Australia | 9 | 29 | 17 |
| Austria | 18 | 21 | 32 |
| Belgium | 23 | 15 | 11 |
| Canada | 20 | 23 | 27 |
| Chile | 27 | 1 | 35 |
| Colombia | 31 | 37 | 2 |
| Czech Republic | 7 | 8 | 4 |
| Denmark | 28 | 16 | 34 |
| Estonia | 1 | 3 | 1 |
| Finland | 15 | 7 | 25 |
| France | 35 | 34 | 37 |
| Germany | 16 | 27 | 28 |
| Greece | 29 | 22 | 10 |
| Hungary | 13 | 6 | 9 |
| Iceland | 32 | 13 | 36 |
| Ireland | 19 | 5 | 30 |
| Israel | 14 | 17 | 29 |
| Italy | 37 | 30 | 33 |
| Japan | 24 | 36 | 21 |
| Korea | 26 | 33 | 24 |
| Latvia | 2 | 2 | 5 |
| Lithuania | 6 | 4 | 7 |
| Luxembourg | 5 | 25 | 20 |
| Mexico | 33 | 31 | 16 |
| Netherlands | 12 | 24 | 22 |
| New Zealand | 3 | 28 | 6 |
| Norway | 10 | 11 | 13 |
| Poland | 36 | 14 | 12 |
| Portugal | 34 | 35 | 31 |
| Slovak Republic | 11 | 19 | 3 |
| Slovenia | 25 | 12 | 14 |
| Spain | 30 | 32 | 19 |
| Sweden | 8 | 9 | 18 |
| Switzerland | 4 | 10 | 15 |
| Turkey | 17 | 26 | 8 |
| United Kingdom | 22 | 18 | 23 |
| United States | 21 | 20 | 26 |
Source: The Tax Foundation
The findings of Tax Policy Center in 2018, a nonpartisan think tank based in Washington D.C., mirrors the findings of The Tax Foundation. Tax Policy Center found that the U.S. tax revenue represented 24% of the gross domestic product (GDP), which was much lower than other OECD countries whose tax revenue on an average was 34% of their GDP.
If we take a look at the different taxes that constitute the tax revenue, we find that 45% of the total U.S. tax revenue came from taxes on personal income and business profits while other OECD countries average was 34%. However, the U.S. collected less revenue in goods and services taxes (18%), and Social Security taxes – retirement, disability, and other social security programs (25%). Other OECD countries received more revenue from good and services (32%), and from Social Security taxes (26%) than the U.S.
Along with having a better tax system, sweeping changes in the U.S. tax code were brought about by The Tax Cuts and Jobs Act in 2017, including reforms in the alternative minimum tax, child tax credit, itemized deductions, lowering of income tax rates, and more; further easing the tax system.
