US Consumption Taxes Low In Global Comparison
A recent paper from the Tax Foundation (TF) pointed out that, while most Organisation for Economic Co-operation and Development (OECD) countries lean more on tax revenue from consumption taxes, the United States relies more on individual income tax, while raising relatively little from consumption taxes.
The TF noted that “this policy difference matters when you consider that consumption taxes raise revenue with less economic damage than individual income taxes.”
According to the most recent data for 2013, consumption taxes were the largest source of tax revenue for OECD countries, raising, on average, 32.7 percent of their tax revenue. However, consumption taxes raised just 17.4 percent of revenues for the US, mainly because the United States is the only OECD country without a value-added tax (VAT). Instead, most US state governments apply a retail sales tax on the final sale of most products and excise taxes on the production of goods such as cigarettes and alcohol.
The United States instead relies heavily on individual income tax, accounting for 38.7 percent of total government revenue in 2013, compared with the OECD average of 24.8 percent.
The TF said that income taxes are levied directly on an individual’s income, and typically wage income. However, many countries, including the United States, also levy their individual income tax on investment income, such as capital gains, dividends, and interest, as well as on “pass-through” income (where an entity’s business income is tax on the individual owner’s tax return).
One of the smallest sources of tax revenue in 2013 was corporate income tax, in both the United States and the OECD. US federal, state, and local governments collected 8.4 percent of their total tax revenue from corporate income that year, as against the 8.5 percent OECD average.
